Scary Financial Mistakes: Business Owners Beware – You Could be Missing Out on Retirement Plan Tax Incentives!

Oct 31, 2023

By Edward “Ed” V. O’Neal, Senior Vice President and Manager, Retirement Plans
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The Setting Every Community Up for Retirement Enhancement (SECURE) 2.0 Act, enacted on December 29, 2022, was designed to make it easier and more affordable for business owners to offer employer-sponsored retirement plans. However, the SECURE 2.0 Act was a massive piece of legislation encompassing more than 300 pages and 90 individual provisions with effective dates spread over the next few years. The industry has continued to review the provisions of this legislation, while also waiting for the Department of Labor and Department of Treasury to provide further guidance and clarity on how to apply certain provisions of the SECURE 2.0 Act.

Given the complexity and scale of SECURE 2.0, it’s understandable that many business owners are still not fully acquainted with many of the key provisions of the Act. Perhaps one of the most impactful provisions of SECURE 2.0 is already available and could be especially beneficial for business owners looking to establish their first retirement plan. It provides a helpful tax credit for small business owners for startup costs associated with establishing a new retirement plan, as well as a credit covering employer contribution costs during the initial years of a new retirement plan.

Ultimately, the tax credit provisions of SECURE 2.0 are designed to eliminate some of the cost barriers for a small business owner wanting to establish a new retirement plan.

  • Startup Cost Tax Credit. The startup cost tax credit was originally created under SECURE 1.0 but was enhanced as part of the recently enacted SECURE 2.0. This tax credit allows small business owners, defined as employers with up to 50 employees, to receive a credit covering 100% of startup expenses up to a maximum of $5,000 for each of the first three years of a new retirement plan. Eligible startup expenses for this tax credit would include recordkeeping fees, employee educational expenses, as well as costs associated with TPA and financial advisor compensation.
  • Employer Contribution Tax Credit. SECURE 2.0 also created a totally new tax credit for businesses with no more than 100 employees that can help offset the employer contributions (matching or non-elective contributions) made to a new retirement plan. This employer contribution tax credit is limited to a maximum of $1,000 per employee and is only available to employees earning no more than $100,000 per year, but it can be used in addition to the startup cost tax credit.

Business owners that don’t currently offer a retirement plan as part of their benefits package may wish to take advantage of these generous new and enhanced tax credits introduced with SECURE 2.0. And although not discussed here, SECURE 2.0 also created a new tax credit for small businesses that make it easier for military spouses to participate in a retirement plan, such as by enhancing eligibility and vesting provisions, along with continuing a credit for businesses that includes an automatic enrollment feature in their retirement plan. These combined tax credits could significantly reduce fees and expenses for small business owners establishing a new retirement plan in the initial few years of the plan.

Additionally, for business owners that reside in one of the states that now require employers to participate in a state-sponsored retirement program, unless they sponsor some other type of retirement plan, these tax credits may provide incentive for business owners to establish their own retirement plan instead of being forced to participate in the state mandated retirement program.

Despite the massive scale of SECURE 2.0, there were several key themes throughout the legislation, including eliminating barriers for business owners to establish new retirement plans. The provisions creating new and enhanced tax credits are some of the most impactful in the legislation and it’s critically important for business owners to become aware of the potential benefits to their overall retirement goals. Be sure to consult with your legal and tax advisor to understand how these tax credits might impact you, and reach out to your Benjamin F. Edwards financial advisor for any questions related to employer retirement plans or SECURE 2.0 provisions.


IMPORTANT DISCLOSURES: The information provided is based on internal and external sources that are considered reliable; however, the accuracy of this information is not guaranteed. This piece is intended to provide accurate information regarding the subject matter discussed. It is made available with the understanding that Benjamin F. Edwards is not engaged in rendering legal, accounting or tax preparation services. Specific questions on taxes or legal matters as they relate to your individual situation should be directed to your tax or legal professional.