Substantial improvements were made to the Federal Tax Credits available to a “small” employer that starts or maintains a Retirement Plan, under the SECURE Act passed in December 2019, and the Retirement Plan law changes known as SECURE 2.0 that were included in the December 2022 legislation that was passed to fund the Federal government through September 2023. To learn more, please read this article: https://acsi-ny.com/supercharged-tax-incentives-for-a-small-employer-that-starts-a-retirement-plan/.
If you are an Employer thinking about starting a Retirement Plan, or you recently started a Plan, you should contact your Tax Accountant to determine whether you qualify for any Federal Tax Credits related to your Plan.
If you are a Financial Advisor, Accountant, Lawyer, or other Trusted Advisor to Employers, and are considering whether to recommend a Retirement Plan, you should make sure to consider the Federal Tax Credits.
As we have analyzed the SECURE 2.0 changes, the significant value of the potential Federal Tax Credits has become obvious.
For example, an Employer with 18 “non-highly compensated employees” (NHCEs) could be entitled to huge Federal Tax Savings:
Startup Tax Credits for Years 1, 2, and 3 of up to $4,500 per year (capped at the actual out-of-pocket expenses paid for plan establishment and operation, if less)
PLUS
Contribution Tax Credits (assuming the employer contribution is at least $1,000 for each employee, and the NHCEs each receive less than $100,000 in wages) –
Years 1 and 2 = $18,000 per year
Year 3 = $13,500
Year 4 = $9,000
Year 5 = $4,500
Under this example, there could be Federal Tax Credits totaling $76,500 for the first five years of the Plan.
Another example is an Employer with 40 NHCEs, for whom the significant Federal Tax Savings could be:
Startup Tax Credits for Years 1, 2, and 3 of up to $5,000 per year (capped at the actual out-of-pocket expenses paid for plan establishment and operation, if less)
PLUS
Contribution Tax Credits (assuming the employer contribution is at least $1,000 for each employee, and the NHCEs each receive less than $100,000 in wages) –
Years 1 and 2 = $40,000 per year
Year 3 = $30,000
Year 4 = $20,000
Year 5 = $10,000
Under this example, there could be Federal Tax Credits totaling $155,000 for the first five years of the Plan.
There potentially are significant dollars available because of the Federal Tax Credits. ACSI is available to help clients and our clients’ advisors learn more about this topic, and the other changes included in SECURE 2.0.
