Thinking of Offering a Plan, SECURE 2.0 is Here to Help

For many employers, offering a 401K plan is often viewed as a luxury of larger companies. The perceived complexity can be enough to force companies to just offer a Simple-IRA plan as an olive branch to employees. Unfortunately those plans come with lower contribution limits and depending on the plan design, higher employer funding commitments.

With the SECURE 2.0 Act, employers now have an added incentive provided by way of tax credits for establishing a 401K. Those credits can take a number of different forms. If the employer sets the plan up as an automatic enrollment plan, they will get a $500 tax credit for the first three years of the plan (as long as they have fewer than 100 employees).

The second tax credit is a credit up to $5,000 for start-up costs available for the first three years of the plan (for plans with fewer than 50 employees, credit is 50% for those from 51 to 100 employees). This credit is the lesser of $5,000 or $250 per eligible non-highly compensated employee.

The third tax credit is a 100% credit toward employer contributions in the first two years, 75% in year three, 50% in year four, and 25% in year five. It is available for the first five years the plan is maintained. The credit is only available for contributions made to employees that make less than $100,000 and a maximum credit of $1,000 per employee.

With all of these credits, it is a great time to evaluate whether adding a 401K plan is right for you and your employees.