These retirement tax credits could be a ‘game changer’ for small businesses

These retirement tax credits could be a ‘game changer’ for small businesses

By   –  Senior Reporter, The Playbook,

Small-business owners are going to see big changes to their 401(k) and worker retirement packages — but there will be some tax credits too.

The SECURE 2.0 Act saw many of its provisions folded into the government funding legislation passed in late 2022. The goal of the legislation was to help workers save for retirement while making it easier for small businesses to offer retirement plans to workers.

Experts say the legislation will help even the playing field for small businesses — a dynamic of added importance amid a tight talent market in which many larger competitors have invested heavily in new benefits and perks.

“SECURE 2.0 is a game changer for small business owners,” said Craig Reid, president and national practice leader of retirement and wealth at at the Marsh McLennan Agency. “A robust retirement plan program is one of the most highly sought-after benefits people look for in a new employer, and small businesses have historically been at a disadvantage to large employers when it comes to this type of benefit.”

One big benefit is a tax incentive for businesses offering 401(k) plans of their own, Reid said.

For businesses with less than 50 employees, there is a startup credit of 100% of administrative costs up to $5,000 (up from the current 50% credit) and additional credits for employer contributions on behalf of employees up to $1,000. That benefit is phased out for small businesses with 51 to 100 employees and also phases out over time, Reid said.

He also said that SECURE 2.0 allows small businesses who currently offer a Simple IRA plan to exchange it for a 401(k) plan without having to close down the plan and wait for a certain period of time.

“If a small business owner has been contemplating a 401(k) plan to attract and retain talent and help grow their business, now is the time,” Reid said.

Nick Strain, senior wealth advisor and chair of the Wealth Advisory Committee at Halbert Hargrove, said the Secure Act has about 92 different provisions. But in addition to the startup 401(k) credit, there are other big pieces of the legislation business owners should be tracking, he said.

That includes, but is not limited to:

  • Allowing employers to offer small financial incentives for employees to contribute to a retirement plan. For example, offering a gift card to get new employees to sign up, Strain said.
  • Employers will now be able to adopt a matching rule that counts an employee’s student loan payment toward the retirement match — and employers using that student loan payment to calculate their own matching contribution. That starts in 2024.
  • The legislation creates emergency savings accounts within retirement accounts that hold up to $2,500. A participant can pull out $1,000 per year for emergencies tax free and repay those withdrawals to build the balance back up again. That begins in 2024.
  • Part-time employees can now participate in a company retirement plan after two years, instead of three, and for working 500 hours a year, down from 1,000.
  • The legislation also requires automatic 401(k) enrollment at a rate of 3% and not more than 10% and not more than 15% of the worker’s total compensation, although businesses with fewer than 10 workers and businesses in operation for less than three years are excluded. That goes into effect in 2025.
  • The relaxation of required minimum contributions and increases in catch-up contributions for older workers.

“Crucially for small businesses, especially those looking to expand beyond the lowest employee designations, this means predicting growth and planning ahead,” said Eliza Arnold, co-founder of

That’s because the startup 401(k) credit will gradually phase out over time, which means business owners will have to make sure that any expansion in their retirement offering is paired with overall business growth. The credit also gradually fades from 100% coverage of employer matches, to 75% in year three, 50% in year four and 25% in year five.

“With expansion comes greater expenses – and hopefully revenue. But with government incentives vanishing, companies with ambitions must also look forward. Secure 2.0 provides some excellent credits and provisions that small businesses need to take advantage of. It’s also prudent to keep an extra cushion for down the line, just in case,” Arnold said.

The $1.7 trillion government funding legislation didn’t just tweak worker retirement plans, it added funds to the Small Business Administration and boosted funding for agencies that oversee small businesses.

That includes the first funding increase for the National Labor Relations Board since 2010, amid a resurgence in union organization and labor activity. It also includes an 18% funding boost for the Financial Crimes Enforcement Network as it seeks to finalize new rules proponents say would target money laundering by creating a database to track the beneficial ownership of companies. Business groups and others have pushed back hard against the proposed rules and some are even suing the agency, arguing they would be burdensome to small-business owners.

The legislation also contained new protections for pregnant and lactating workers — and attorneys say business owners need to ensure they are on the right side of the law. Portions of the Pregnant Workers Fairness Act (PWFA) and the Providing Urgent Maternal Protections for Nursing Mothers Act (PUMP Act) made it into the final omnibus bill, and they expand the protections those workers should receive.

The PWFA extends the Americans with Disabilities Act to cover pregnant workers, which means businesses with 15 or more employees must provide reasonable accommodations to pregnant workers.

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