4 Tax Credits for Small-Business Retirement Plans

2023 | Defined Contribution Insights

Tax credits contained within the recently enacted the SECURE 2.0 Act help make it easier and more affordable for small businesses to offer a qualified retirement plan.

Source: WTW Global Benefits Attitudes Survey, 2022

Offering a Retirement Plan Has Never Been Easier—or Cheaper

As a small business owner, offering a retirement plan is a great way to attract and retain top talent, but you might be concerned about the cost. Tax credits contained within the recently enacted the SECURE 2.0 Act help make it easier and more affordable for small businesses to offer a qualified retirement plan.¹

1. Plan Administrative Cost Credit

Employers with less than 50 employees are eligible for a tax credit equal to 100% of the administrative costs of the plan, up to $5,000 annually, for three years. For employers with 51-100 employees, the tax credit is 50% of administrative costs, capped at an annual limit of $5,000 for three years.²

Source: WTW Global Benefits Attitudes Survey, 2022

¹Qualified retirement plans include a 401(k) plan, SEP IRA, and SIMPLE IRA.

²For new plans. In order to qualify, a business must have at least one employee who is a non-highly compensated employee (NHCE). A NHCE is a person who made less than $135,000 in the prior year (2022) with the business and is not the business owner. The credit is based on the greater of $500 OR $250 per NHCE (capped at $5,000), applied to 100% of the costs incurred. A highly compensated employee (HCE) is defined as: Owning more than 5% of the interest in the business at any time during the year or the preceding year, regardless of how much compensation that person earned or received, or for the preceding year, received compensation from the business of more than $135,000 if the preceding year is 2022), and $150,000 (if the preceding year is 2023) and, if the employer so chooses, was in the top 20% of employees when ranked by compensation. Source: IRS.

³New or existing plans established on or after 12/29/2022. However, plans aren’t required to start automatically enrolling eligible employees until their first plan year beginning after 12/31/24.

⁴Military spouse must be a NHCE to qualify.

⁵All 25 employees are NHCE. Every employee is eligible for the employer profit-sharing contribution.

This material is provided for educational purposes only and is not intended to provide legal, tax or investment advice. Please consult your tax professional for more information.

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