As a small business owner, setting up a retirement plan for your team might feel like an expensive, complicated endeavor – but with available tax credits from the SECURE Act, it doesn’t have to be.
*Most employers with 100 or fewer employees who do not currently offer retirement plan benefits will qualify
Why retirement plans matter
Access to a retirement plan is a key benefit jobseekers look for when weighing their employment options. The SECURE Act makes it possible for smaller businesses to compete on this point with larger employers.
In addition to boosting your ability to attract and retain talent, employee retirement benefits:
- Foster loyalty and drive productivity
- Help provide long-term financial stability for your employees
- Open the door for additional tax credits when you make employer contributions to a defined contribution (ex. 401(k)), SEP IRA or SIMPLE IRA plan
How do the credits work?
Eligible employers can claim credits in three different ways –
Startup, administration and employee education
- Employers with up to 50 employees can cover 100% of eligible startup costs up to $5,000 for the first three years of a newly established plan beginning in 2025
- Employers with 51-100 employees can cover 50% of costs up to the same $5,000 maximum credit
- Credit is $500 or the lesser of $5,000 and $250 multiplied by the number of non-highly compensated employees
Automatic enrollment
Adding an auto-enrollment feature to your plan allows you to claim an additional $500 tax credit per year for a 3-year taxable period.
- This credit can be claimed by employers who add auto-enrollment to an existing plan
Employer contributions
Employers who make plan contributions for employees earning under the income threshold for the plan year ($100,000 as of 2023) are eligible for a tax credit up to $1,000 per eligible participant for the first five plan years.
- Note that the size of the contribution necessary to claim the full tax credit increases in the third, fourth and fifth plan years
Read “Retirement plans startup costs tax credit” at irs.gov for full details
Right now is the perfect time to get started
If you’re unsure where to start, get in touch and we can recommend a trusted retirement plan provider.
Special note for WA businesses
If you need an extra incentive to finally get around to setting up a retirement plan for your employees, during so now will mean you DO NOT need to register for Washington Saves starting in 2027 – which will be mandatory for nearly all employers operating in the state.
Setting up a private plan allows you to:
- Have more flexibility and control over plan options
- Avoid L&I investigations for employee complaints regarding Washington Saves administrative responsibilities
Soon, ALL Washington State employers will be required to provide a qualified retirement plan for eligible employees. If you do not wish to use the state-sponsored program, you will need to choose a private plan administrator.
Learn more about employer responsibilities regarding Washington Saves.
