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Secure Act 2.0: A Deep Dive into 401(k) Tax Credits for Small Businesses

January 11, 2024

Secure Act 2.0: A Deep Dive into 401(k) Tax Credits for Small Businesses 

The Setting Every Community Up for Retirement Enhancement (SECURE) Act 2.0 is a game changer for small businesses. This legislation, which builds on the foundations of the original SECURE Act, offers substantial tax credits to small businesses that initiate a 401(k) plan[^1^].

The SECURE 2.0 Act was designed to encourage more employers to offer retirement plans, thus increasing the number of Americans saving for their future. The key feature of the Act is a tax credit for small businesses that make employer contributions to their 401(k) plans[^2^]. This post will delve into the specifics of these tax credits and how they can benefit small businesses.

Understanding the SECURE 2.0 Act

Under the SECURE 2.0 Act, small businesses with between one and 50 employees that start a 401(k) plan can cover 100% of their business costs through tax credits[^3^]. This is a significant leap from the original SECURE Act, which offered a tax credit equal to 50% of administrative costs, capped annually[^4^].

Businesses with 51 to 100 employees are still subject to the original SECURE Act start-up tax credit — 50% of administrative costs, capped annually[^5^]. However, the SECURE 2.0 Act goes a step further by offering a new tax credit for employer-provided contributions[^6^].

What does this mean for small businesses? 

Eligible employers may be able to claim a tax credit of up to $5,000, for three years, for the ordinary and necessary costs of starting a SEP[^7^]. On top of this, there's an additional tax credit of up to $1,000 per employee for eligible employer contributions[^8^].

This means small employers get tax credits for employer contributions for the first five tax years for new plans. This is a significant incentive for small businesses to start offering retirement plans, as it substantially reduces the financial burden of doing so.

Final thoughts

The SECURE 2.0 Act is a win-win situation for both small businesses and their employees. Businesses can benefit from substantial tax credits, while employees gain access to retirement plans. It's a step towards a future where every American worker has the opportunity to save for their retirement in a tax-efficient way.

For small businesses, there's never been a better time to consider starting a 401(k) plan. The SECURE 2.0 Act offers significant financial incentives to do so, making it an opportunity that's too good to miss.

As a small business owner, you might be wondering how these changes affect you and what you need to do next. That's where George Wealth Management comes in. We're currently offering a complimentary evaluation to small business owners on credits and costs they would have using the Cares Act 2.0 provisions. Don't miss this chance to understand how you can maximize your benefits under the new law. Contact us today to schedule your free consultation.

For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera Advisor Networks LLC nor any of its representatives may give legal or tax advice.

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[^1^]: Employee Fiduciary [^2^]: ADP [^3^]: IRS [^4^]: Paychex [^5^]: ShareBuilder 401k [^6^]: Pentegra [^7^]: iSolved HCM [^8^]: RSM US