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Small Business Retirement Plan Incentives You Don’t Want to Forget

February 15, 2024

Offering a retirement plan can be a powerful tool when you’re competing to attract the best employees. Thanks to laws enacted in recent years, setting up and running a new retirement plan or adding new features in an existing plan can be more affordable than ever using the following tax credits and incentives.

 

Tax Credit for Startup Costs

A tax credit equal to 100 percent of the administrative costs for establishing a workplace retirement plan is available for up to three years for eligible businesses with 50 or fewer employees. Businesses with 51 to 100 employees will still adhere to the original tax break rules, which caps the credit at 50% of administrative costs and with an annual cap of $5,000.

 

Tax Credit for Employer Contributions

Eligible businesses with up to 100 employees may qualify for a tax credit based on its employee matching or profit-sharing contributions. This credit, which caps at $1,000 per employee, phases down gradually over five years and is subject to further reductions for employers with 51 to 100 employees. In the second year, the credit is the same as the first year then phases down: year 3 it is 75% of the credit in year one, in year 4 it is 50% and year 5 it is 25%.

 

Automatic Enrollment Tax Credit

A credit is available for plan sponsors that voluntarily add an Eligible Automatic Contribution Arrangement (EACA) to their workplace plans. The EACA is a type of 401(k) automatic enrollment which requires that employees who are auto-enrolled be allowed to cancel their auto-enrollment within 90 days and withdraw the amount that was contributed.

This credit is only available to employers with 100 employees or less. The credit is available for the first tax year in which the plan has the EACA feature, and the two subsequent tax years. The EACA feature will be mandatory by 2025 for most 401(k) plans adopted in 2023 or later.

 

Military Spouse Credit

A credit is available to employers with no more than 100 employees that have eligible military spouses as participants within their plans.

An employer may receive a tax credit of up to $500 per year for three years for each military spouse covered under their defined contribution plan. This amount is $200 for each military spouse, plus the amount of employer contributions made on behalf of the military spouse, up to $300.

For credit eligibility, military spouses must be eligible to participate in the plan no later than two months after their date of hire. Upon entering the plan, they must be immediately eligible for the same (or greater) level of employer contributions that would be available to any other employee after two years of service. Furthermore, the employer contributions must be 100% vested.

 

Student Loan Matching

In 2024, companies can match employee student loan payments with retirement contributions. The rule change offers workers an extra incentive to save for retirement while paying off student loans.

 

SIMPLE and SEP

Employers can now make Roth contributions to savings incentive match plans for employees (SIMPLE) or simplified employee pension (SEP).


Contact Us

If you are eligible, consider taking advantage of these new incentives to start or expand your qualified workplace retirement plan. Learn more about how these incentives can play a part in your overall financial picture and workplace benefits by reaching out to your Alloy Silverstein Accountant and Advisor or the professionals at Alloy Silverstein Financial Services, Inc.