The SECURE 2.0 Act is legislation geared to help relieve the cost of 401(k) plans for small businesses. One of the clearest ways it does this is through tax incentives. When partnering with a saveday 401(k), which is $0 cost-to-employer, these savings can only compound. But what exactly are these tax incentives, and how can they benefit small businesses?
1. Startup Credits Enhanced:
Small businesses currently have the option to claim a tax credit for 50% of the startup costs involved in creating and administering a plan, with an annual maximum credit of $500. However, with the implementation of the SECURE 2.0 Act, this credit is increased. Now, businesses can claim a credit equal to either (a) $500 or (b) the lesser of $250 multiplied by the number of non-highly compensated employees eligible to participate in the plan, or $5,000. This change means that businesses can potentially access a maximum credit of $5,000 for a period of three years, which significantly offsets their initial costs.
2. Credit for Automatic Enrollment:
In addition to the startup credits, the SECURE 2.0 Act introduces a new credit for small businesses that add automatic enrollment to their new or existing retirement plans. This credit is worth $500 and can be claimed for three years.
3. Extended Period for Plan Adoption:
Businesses now have an extended period to adopt new retirement plans. So that means, rather than having to establish a plan by the end of the business year, businesses can set up a plan as late as their tax filing deadline, including extensions. This flexibility can assist in better financial planning for the tax credits.
Overall, the introduction of enhanced tax incentives for small businesses in SECURE 2.0 is a clear nod towards promoting retirement savings and making it more affordable for businesses to provide such plans. By partnering with a platform like saveday, which already minimizes costs, small businesses can leverage these incentives to the fullest, offering robust retirement benefits without a heavy financial burden.
Ready to learn more about how a 401(k) can transform your small business? Read more here.