In the ever-evolving landscape of retirement planning, legislative changes can have profound implications for both business owners and their employees.
At Consolidated Planning, we acknowledge that basic group benefits provide a fast start in building a solid foundation for employees. Benefits such as Retirement Plans are now a core expectation for new hires looking at new opportunities.
In this article, we’ll help you understand what the SECURE Act is and how the tax credits associated with a 401(k) plan make it possible and meaningful to get started with a retirement plan for the longevity of your business.
What Is The SECURE Act?
The Setting Every Community Up for Retirement Enhancement (SECURE) Act was originally introduced and passed in December 2019. The SECURE Act has two purposes with regards to corporate retirement accounts:
- To encourage new plan set ups for employers who have not previously offered a plan to employees
- To increase access of more Americans to retirement savings options beyond individual accounts
Historically, the set up and administrative costs have been a barrier for 401(k) plans, leading business owners to elect for SEP or Simple IRA’s, or none at all. With the SECURE Act, tax credits were introduced for businesses who start retirement plans for their employees.
Since its inception in 2019, the SECURE Act has been updated to further reflect how Americans save and withdraw money from their retirement.
Here are some ways the SECURE 2.0 Act affects retirement:
- Automatic 401(k) Enrollment
- Updated employer contribution options
- Catch-up contributions
- Education savings and loan debt
- Saver’s tax credit
- Hardship withdrawals
Now, this may all sound well and good, but what exactly is the incentive to start a retirement plan for your business?
Tax Credits Make The 401(k) More Desirable For Business Owners
Regardless of employees, tax filing status, and number of partners, you have options when it comes to the right retirement plans for your business. Depending on the size of your business, some of these options include:
- 401(k)
- Simplified Employee Pension (SEP) IRA, and
- Savings Incentive Match Plan for Employees (SIMPLE) IRA
Starting a 401(k) plan for your business is a fairly simple undertaking. Partnering with an advisor who has access to all of the available record keepers can take most of the heavy lifting off of your plate. Bundled service options for start up plans keep costs low and plan designs simple.
There is no rule that says you MUST offer a match and you can always choose to make a match discretionary. There may be some limitations on the amount owners and highly compensated employees may contribute to their own account balances if there isn’t a match. It makes sense to weigh costs associated with a variety of options.
The administrative costs associated with starting retirement plans, paid to record keepers, TPAs, advisors, etc., may be eligible for tax credits based on the number of non-highly compensated employees (NHCEs) that are eligible for the plan.
According to the IRS, for plans with up to 50 employees (the credit phases out from 51-100), the tax credit is 100% of your eligible startup costs, of $500, or the lesser of $250 multiplied by the number of NHCEs who are eligible to participate in the plan, or $5,000. You can claim the credit for ordinary and necessary costs for set up and administration of the plan, and to educate your employees about the plan.
Why Are Business Owners Not Offering A 401(k) Even With The Tax Credit?
According to the Fidelity Investment’s 2023 Small Business Retirement Index study, only a third of small business owners offer a retirement plan to their employees.
Of the half of those business owners who DON’T have a retirement plan in place, (48%) say they do not believe they can afford one, 22% say they are too busy running their business to focus on offering one, and 21% say they don’t know how to start the process of offering a retirement plan though they would like to.
Whichever reason resonates with you is a valid reason for not offering one. BUT, the benefits of introducing a retirement plan, especially a 401(k), to your employees far exceeds the time and effort to get started. With the right retirement planning specialist, the burden of setting up, administering, and managing a 401(k) plan on your behalf can far less burdensome. Just like the start up costs thanks to the SECURE Act.
The SECURE Act makes it easier than ever for you to offer your employees a 401(k) plan, so what are you waiting for?
Get Started With A 401(k) In Your Business
As a business owner, these plans are EXPECTED from your current and future employees, to the point that it seems like it’s no longer optional to offer a 401(k) plan to your employees.
When implemented the right way, most of the associated costs with a 401(k) over the first few years will come back to you in the form of tax credits. Credits, not deductions. A $5,000 credit, for example, simply takes that amount off of your tax bill altogether.
To learn more about setting up a retirement plan in your business, talk with an experienced planning professional at Consolidated Planning.
2024-171770 Exp. 3/2026
Guardian, its subsidiaries, agents and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation. The information provided is based on our general understanding of the subject matter discussed and is for informational purposes only.
This material contains the current opinions of Mike Dare and Consolidated Planning only. These are not the opinions of Park Avenue Securities, Guardian, or its subsidiaries.
