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  • Writer's pictureKevin Buckley, CEBS

SECURE 2.0 Tax Credits - what all small business owners should know.


The SECURE 2.0 Act of 2022 has introduced significant changes and benefits for small businesses looking to establish retirement plans. This legislation not only makes starting a retirement plan more financially accessible but also introduces mandatory features like automatic enrollment starting in 2025. Let's delve into the key takeaways from SECURE 2.0 and how they can impact small businesses and their employees.



The New Employer Contribution Startup Tax Credit


SECURE 2.0 has created a new startup tax credit based on the employer's contributions. For companies with no more than 100 employees, this credit applies to contributions for each employee earning up to $100,000 per year, with a cap of $1,000 annually per employee over the plan’s first five years.


Phase-down Schedule:


  • Year 1: 100%

  • Year 2: 100%

  • Year 3: 75%

  • Year 4: 50%

  • Year 5: 25%

Expanded Plan Cost Startup Tax Credit


This expanded credit covers a portion of the costs associated with setting up and administering a retirement plan. For businesses with 50 or fewer employees, it covers 100% of these costs, up to an annual limit, while businesses with 51 to 100 employees receive 50% coverage.


Automatic Enrollment Requirement (Starting 2025)


From 2025, SECURE 2.0 mandates automatic enrollment for certain retirement plans. This includes a tax credit of $500 per year for the first three years for employers who incorporate this feature.


Summary


SECURE 2.0 offers a valuable opportunity for small businesses to establish and maintain retirement plans with financial incentives. The act not only aids in alleviating the initial cost burden but also promotes employee participation through automatic enrollment. It's crucial for employers to understand these changes and benefits, allowing them to make informed decisions for their businesses and employees' futures.


If you're an employer considering setting up or modifying a retirement plan, now is the time to explore these options. The new and expanded tax credits under SECURE 2.0 can provide significant financial benefits, making this an ideal time to invest in your employees' retirement security.

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