An Attractive Deal Awaits Small Businesses When Starting a Workplace Retirement Plan

Small business owners without workplace retirement plans now may take advantage of expanded tax credits if they establish one, according to John Kutz, National Retirement Plan Strategist at Franklin Templeton. He outlines recent regulatory and legal developments.

Wealth managers have historically struggled with how best to support clients that own small businesses. However, current regulations and enhancements in retirement plan structures make offering 401(k) plans to small businesses much easier and less expensive.

This is a win-win-win situation. It’s a win for our broker-dealer and advisor partners seeking to add “stickier assets” to their book of business by offering retirement plan services to their clients. It’s a win for the business owner as tax credits are now available to help mitigate the costs of a retirement plan. And it’s a win for the employees of the business that want an attractive retirement savings option.

Let’s dive into the tax deal that awaits small businesses…

Small business owners who do not currently offer a workplace retirement plan, now have an attractive tax deal to start one. By small, I mean businesses with 50 or fewer employees. Section 102 of the SECURE Act 2.0 of 2022 (SECURE 2.0) enhances and expands the tax credits available for your business if you establish a new simplified employee pension (SEP), savings incentive match plan for employees of small employers (SIMPLE) plans or qualified retirement plan like a 401(k) plan.

First, for businesses with up to 50 employees without a retirement plan that establishes a SEP, SIMPLE IRA, or 401(k) plan, Section 102 of SECURE 2.0 increases the small plan startup tax credit from 50% to 100% of eligible costs (capped at $5,000 per year) for the first three years the plan exists. (Prior rules still apply for those with 51-100 employees.)