Small Business Retirement Plans Get Big Boost from Congress

February 15, 2023

Offering a retirement plan can be a powerful tool when you’re competing to attract the best employees. Now, thanks to the recently passed SECURE Act 2.0, setting up and running a new retirement plan is more affordable than ever using the following tax credits:

• Tax Credit for Startup Costs. A tax credit equal to 100 percent of the administrative costs for establishing a workplace retirement plan is available for up to three years for eligible businesses with 50 or fewer employees. Businesses with 51 to 100 employees will still adhere to the original tax break rules, which caps the credit at 50% of administrative costs and with an annual cap of $5,000.Taking advantage: This credit could cover all set-up and administrative costs during the first three years of a plan’s existence, as average 401(k) set-up costs range from $1,000 to $2,000, while average annual administrative costs range from $1,000 to $3,000. To keep your annual administrative costs are low as possible, it may be worth shopping around for different plan providers as the fees can vary.
• Tax credit for employer contributions. Eligible businesses with up to 100 employees may qualify for a tax credit based on its employee matching or profit-sharing contributions. This credit, which caps at $1,000 per employee, phases down gradually over five (5) years and is subject to further reductions for employers with 51 to 100 employees.Taking advantage: Once this tax credit has expired after the plan’s first five years of existence, employer contributions to 401(k), SEP and SIMPLE plans are still tax deductible up to certain limits. This means that both the employer and employee can both continue to reap tax savings for the entire life of the retirement plan.

Remember that employees can still contribute to their own individual IRA. So let your employees know that in addition to having either a 401(k), SEP or SIMPLE account through your company, they may also qualify to contribute to their own traditional IRA or Roth IRA.

It’s never been easier or more affordable to start a retirement plan for your business. Please call if you have questions about your current retirement plan or starting a new plan.