If small business owners are feeling fried just thinking about the costs of starting a retirement plan, we’ve got a-peeling news. Thanks to the SECURE Act and SECURE 2.0, Uncle Sam is offering some tater-tastic tax credits to lighten the load and beef up the benefits. So grab a fork and let’s dig in.
Start-Up Credit: A Spudtacular Deal
First up on the menu is the start-up cost credit. Originally, under the SECURE Act, small businesses (100 or fewer employees) that established a new retirement plan could claim a credit of 50% of the plan’s start-up costs up to $5,000 per year for three years to cover setup and administrative costs. That’s $15,000 in total!
But it gets even butter for those with 50 or fewer employees. Under SECURE 2.0, if a business has 50 or fewer employees, they can get a credit for 100% of those costs. The credit is limited to the lesser of $5,000, or the greater of $250 per non-highly compensated employee or $500, for each of the first three years. The credit covers any qualified plan start-up costs. This includes fees for the plan document, recordkeeper, plan administration, financial advisor, etc. Talk about fully loaded.
Example: Meet Cris P. Hash, owner of “Tater Tech,” a 12-person app development firm specializing in starch-based emojis (yes, it’s a niche). Cris wanted to help his team save for retirement, but was worried about the cost. After establishing a new 401(k) plan, the start-up fees from all his service providers totaled $7,500*, and then $5,000* for the subsequent 2 years. Thus, he qualified for the full $5,000 start-up credit each year—meaning he’s now $15K richer in tax breaks, and his team is saving for the future. Talk about a sweet potato move.
*Fee amounts shown are for example purposes only and do not represent actual fees or fee patterns.
Employer Contribution Credit: Bring Home the Bacon (and the Hash Browns)
SECURE 2.0 didn’t just stop at start-up costs. If business owners are contributing to their employees’ retirement accounts, they can get a credit for up to 50% of employercontributions (capped at $1,000 per employee) in year one. The credit phases down over five years—but the first year is the biggest scoop.
Example: Let’s go back to Cris. He contributes $1,000 to each of his 12 employees’ accounts. That’s $12,000 total. The IRS hands him back $6,000 in tax credits in year one. That’s what we call hashing out some savings.
Automatic Enrollment Credit: Just Set It and Forget-it-o
Here’s another crisp perk: If plan sponsors add automatic enrollment to their retirement plan (which is required for many under SECURE 2.0) they can pocket an additional $500 per year for three years. That’s $1,500, just for encouraging employees to start saving their chips early.
Think of it as getting paid to do the right thing—no half-baked ideas here.
Military Spouse Credit: A Fry-Sized Thank You
Another SECURE Act perk? A credit for supporting the heroes behind the heroes. Employers with 100 or fewer employees earning $5,000 or more annually can receive a tax credit of $200 for each military spouse they include in the plan
But wait—there’s more to this side dish. If employers make contributions to military spouses’ accounts, they can earn up to $300 per person. These sizzling credits are available for the first three years in which the military spouse participates in the plan.
To qualify, the employee must be married to someone actively serving in the uniformed services and must become eligible to join the plan within two months of being hired. Employer contributions are 100% vested. No waffle fries here—just crisp, clear value.
The Bottom Line: Don’t Be a Couch Potato
With these credits on the table, there’s never been a better time to establish a retirement plan. Whether it’s for a small start-up crew or a team of 50 fry-cookin’ dreamers, the SECURE Act and SECURE 2.0 make it easier (and more affordable) to say “yes” to retirement plans.
It’s time to plant those seeds, cook up a solid retirement offering, and enjoy the gravy train of tax incentives!
Want help peeling back the layers of these tax credits more?
Fill out the form below and we’ll send you our detailed resource with more information!
