It’s no secret that many small businesses have struggled to implement a retirement plan, with cost, complexity, and compliance being just some of the hurdles. But with the SECURE 2.0 Act, these barriers are coming down. Now, businesses have more reasons than ever to offer a plan as the act incentivizes them and makes retirement planning even more affordable and rewarding.
In this guide, we will discuss what tax credits are available, how to claim them, and a real-world example of how these savings stack up quickly. So, think of this not only as your roadmap to the advantages SECURE 2.0 offers, but as a strategic blueprint for your business and your team.
SECURE 2.0 Tax Credit Checklist
Here’s a quick list of what small businesses can qualify for in tax credits and additional contributions:
- Startup credit: Up to $5,000 per year for your first three years
- Employer contribution credit: Up to $1,000 per employee for up to five years
- Automatic enrollment credit: $500 per year for the first three years
- Military spouse credit: Up to $500 per eligible spouse
- Saver’s credit/Saver’s Match: Starting in 2027, 50% match on contributions up to $2,000 per employee ($1,000 maximum match)
- Catch-up contributions: Employees 50+ can save more
- Super catch-up contributions: Higher limits for those 60-63 years old
- Deductible employer contributions: Matching or profit-sharing contributions are usually tax-deductible as a business expense
Why Tax Credits Matter for Small Businesses
Historically, small business owners have worried about retirement plans draining their budgets and putting their savings behind instead of ahead. Thanks to SECURE 2.0 though, their investment becomes an almost immediate ROI. Here’s why:
- Credits are dollar-for-dollar, so they provide a direct reduction in your taxes
- Additional deductions also lower your taxable income, and when combined with credits, maximize your savings
A Deeper Look at the SECURE 2.0 Tax Credits for Employers
Startup Plan Credit
- Designed to take the sting out of startup costs and make plan management less intimidating
- Can cover up to 100% (depending on your employee headcount) of eligible startup and administration costs
- Worth up to $5,000 per year for the first three years
Employer Contribution Credit
- Reduces tax liability for employers who contribute to employees’ retirement accounts
- Worth up to $1,000 per employee
- Available for five years (you’ll get the full credit for the first two years)
Auto-Enrollment Credit
- Provides an extra boost for plans offering automatic enrollment
- Offers $500 per year for three years
- Encourages higher employee participation while lowering your costs
Military Spouse Credit
- Designed to meet the unique needs of military families
- Offers up to $500 per military spouse included in plan eligibility
- Helps support flexibility and faster access to retirement benefits
How to Claim Retirement Plan Tax Credits
Getting the tax credits you’ve earned is fairly simple, but you just have to make sure you’re following the right steps.
- Verify your eligibility: Confirm your headcount, the date you started your plan, and contribution activity.
- Track costs: Keep records of all your contribution, administration, and startup expenses.
- File Form 8881: This is known as the “Credit for Small Employer Pension Plan Startup Costs and Auto-Enrollment” form.
- Apply your credits: At this point, it’s time to offset your tax liability. Unused credits may be able to be carried forward.
- Work with a tax expert: They can help you maximize your credits and savings.
To learn more, you can get additional information from the IRS, or consult with a tax professional.
How the Math Works
As mentioned, plan costs can be around $0 if available credits and deductions are used. Let’s break it down as if you have a 20-employee business and just launched a 401(k):
- Startup credit: $5,000 x 3 years = $15,000
- Automatic enrollment credit: $500 x 3 years = $1,500
- Employer contribution credits: Up to $20,000 over 5 years
- Yearly deductible contributions = even more savings
So, your savings potential is well into the tens of thousands if you take advantage of every option available!
Turning SECURE 2.0 Into Your Growth Opportunity
The SECURE 2.0 Act has already and will continue to optimize retirement opportunities for small businesses for years to come. Between generous tax credits and enhanced incentives for employees to stay engaged with their savings accounts, investing in a retirement plan is more advantageous than ever, and it’s time for business owners to capitalize on the opportunities (if they haven’t already done so).
At Ubiquity, we make getting started with a 401(k) or upgrading a current plan simple. We offer flat-fee, highly customizable retirement solutions that take advantage of every SECURE 2.0 credit – without the administrative headache. No matter where you are on your retirement journey, we’ll help you and your team reach your financial goals and gain the peace of mind you deserve.
FAQs
What tax credits are available for small businesses under SECURE 2.0?
There are several tax credits a business owner may qualify for, including credits for startup costs, employer contributions, automatic enrollment, and even a special one for military spouses.
Who qualifies for the startup tax credit?
Businesses that have 100 or fewer employees who earned at least $5,000 in compensation for the preceding year can qualify. If a business has 50 or less employees, they can qualify for 100% of the credit.
What is the Saver’s Credit?
Saver’s Credit, which will eventually be replaced by Saver’s Match, is a tax credit designed to help low- and moderate-income individuals reduce their tax bill by up to $2,000. In 2027, Saver’s Match will replace it, which provides a 50% match on the first $2,000 of contributions, and these savings will be distributed right into a saver’s retirement account.
How do I claim retirement plan tax credits?
You need to file Form 8881 with your business’ tax return. You can work with a tax professional if you need help.
What is a super catch-up contribution?
A super catch-up allows employees 60-63 years old to contribute even more to help close the retirement savings gap.
