Secure 2.0 Tax Credits for Employer-Sponsored Retirement Plans

Retirement

Nov 25

Written By Jonathan M. Elliott, CPWA®, CRPC®, CDFA®, ChSNC®, CPFA™, RMA®

*Table information sourced from the IRS website*

The SECURE 2.0 Act contains strong tax credits for small businesses that start retirement plans (401(k), SEP or SIMPLE IRAs). These credits reduce costs substantially, making retirement benefits possible for small employers.

What Are the Startup Tax Credits?

The Employer can claim up to $5,000 a year for three years to help cover the cost of establishing a retirement plan, if they are eligible. Since this is a dollar for dollar reduction in taxes, this is cash in hand.

Eligibility Requirements

Employers qualify if they:

Have 100 or fewer staffers earning at least $5,000 in the previous year.
Incorporate at least one Non-Highly Compensated Employee (NHCE) into the plan.
Haven’t put forward a rival proposal in the past three years

How Much Can You Claim?

For businesses with:

50 or less employees: 100 percent of start-up costs, capped at $5,000.

51–100 employees: 50 percent of startup costs; up to $5,000

What Costs Are Covered?

Credits are applicable to expenses for:

Establishing and managing the plan.
Educating employees about the plan

Tax Credits for Employer Contributions

Employers could also be eligible, per employee, to receive up to $1,000 for contributions to retirement accounts, phasing down over five years.

0-50 employees:

Year 1: 100%, up to $1,000
Year 2: 100%, up to $1,000
Year 3: 75%, up to $1,000
Year 4: 50%, up to $1,000
Year 5: 25%, up to $1,000

51–100 employees:

Year 1: 100% minus 2% for each employee exceeding 50, up to $1,000
Year 2: 100% minus 2% for each employee exceeding 50, up to $1,000
Year 3: 75% minus 2% for each employee exceeding 50, up to $1,000
Year 4: 50% minus 2% for each employee exceeding 50, up to $1,000
Year 5: 25% minus 2% for each employee exceeding 50, up to $1,000

Auto-Enrollment Tax Credit

Employers that add auto-enrollment to a new or an existing plan can claim an additional $500 per year for three years.

Claiming the Credit

To claim these credits, simply file Form 8881 along with your tax return.

Such incentives lower costs, allowing small businesses to provide benefits to employees and attract quality talent. We would be glad to help you in starting a plan for your business.

Jonathan M. Elliott, CPWA®, CRPC®, CDFA®, ChSNC®, CPFA™, RMA®

I am currently the Managing Partner for our independent investment advisory firm, Optima Capital Management. Together with my business partners, Todd Bendell CFP® and Clinton Steinhoff, we founded Optima Capital in 2019 as a forward-thinking wealth management firm that serves as an investment fiduciary and family office for high-net-worth individuals and families. In addition to being the Chief Compliance Officer, my role at Optima Capital is portfolio management. I have over 22 years of experience in managing investment strategies and portfolios. I specialize in using fundamental and technical analysis to build custom portfolios that utilize individual equities, bonds, and exchange-traded funds (ETFs). I began my financial services career with Merrill Lynch in 2003. At Merrill, I served in the leadership roles of Market Sales Manager and Senior Resident Director for the Scottsdale West Valley Market in Arizona. On Wall Street Magazine recognized me as one of the Top 100 Branch Managers in 2017. I am originally from Saginaw, Michigan, and a marketing graduate from the W.P. Carey School of Business at Arizona State University. I am a Certified Private Wealth Advisor® professional. The CPWA® certification program is an advanced credential created specifically for wealth managers who work with high net worth clients, focusing on the life cycle of wealth: accumulation, preservation, and distribution. In addition, I hold the following designations - Chartered Retirement Planning Counselor (CRPC®), Certified Divorce Financial Analyst (CDFA®), Certified Plan Fiduciary Advisor (CPFA), and Retirement Management Advisor (RMA®). In the community, I am a member of the Central Arizona Estate Planning Council (CAEPC) and serve as an alumni advisor and mentor to student organizations at Arizona State University. My interests include traveling, outdoors, fitness, leadership, entrepreneurship, minimalism, and computer science.