The federal SECURE 2.0 legislation was designed and enacted to improve retirement readiness for more American workers.
This legislation aims to make it more affordable and attractive for small employers to provide valuable retirement benefits to their employees by offering enhanced tax credits that can significantly offset the costs of starting and maintaining a plan.
Under SECURE 2.0, your small business may be eligible for the following:
Start-up tax credit. Small businesses with under 100 employees can claim a tax credit of up to $5,000 per year for three years to help cover the administrative costs of starting a new plan.
Previously, small businesses with less than 100 employees were eligible for a three-year, start-up tax credit of up to 50% of administrative costs with an annual limit of $5,000. SECURE 2.0 increased the credit to 100% of qualified start-up costs for eligible employers with no more than 50 employees, and at least one non-highly compensated employee, when they establish a SEP, SIMPLE, defined benefit or defined contribution plan, including 401(k) plans.
For employers with 50-100 employees, the credit is 50% of eligible start-up costs, up to the greater of $500 or the lesser of $250 per non-highly compensated eligible employee or $5,000. The credit is available for up to three years for all qualified employers.
Small employer auto enrollment credit. Businesses that automatically enroll employees in their retirement plan can claim a $500 per year tax credit for five years.
SECURE 2.0 introduced this new tax credit for eligible employers with under 100 employees who offer defined contribution plans like 401(k)s. The credit is based on an employer’s plan contributions, up to $1,000 per employee annually, excluding those earning over $100,000.
To qualify for the full credit, employers must have no more than 50 employees. For employers with 51-100 employees, the credit decreases by 2% for each additional employee over 50. The credit may cover up to:
- Years one and two: 100% of contributions
- Year three: 75% of contributions
- Year four: 50% of contributions
- Year five: 25% of contributions
Employers can claim this credit over five years.
Saver’s match credit. Lower-income employees who contribute to a retirement plan can receive a government matching contribution of up to $2,000, which the employer can claim as a tax credit.
Still on the fence about offering a retirement plan?
The new credits may provide the financial incentive you need to boost retirement readiness for your employees — especially with the rise of state retirement plan mandates. These state-level initiatives require businesses to either offer a qualified retirement plan or enroll employees in a state-run program. And as deadlines for compliance are approaching in several states, you may consider the benefits of a plan that demonstrates your commitment to your employees’ long-term financial security.
Questions? Reach out to the experts at Magone & Co for guidance on taking advantage of these and additional tax credits.
This document is for informational purposes only and should not be considered tax or financial advice. Be sure to consult with a knowledgeable financial or legal advisor for guidance that is specific to your unique circumstances.