Are you a business owner looking to provide a retirement plan for your employees but are plagued by the associated costs? You may be interested in learning about new legislation that could help open the door to planning for
At the end of 2022, President Biden signed into law the SECURE 2.0 Act, which provides a tax credit for business owners who want to open a 401(k) plan.
The tax credit was introduced in the original SECURE Act of 2019, but has been significantly increased in the updated law. If he has 50 or fewer employees than her, the startup can now claim his credit covering 100% of his costs associated with initiating and managing a 401(k) plan.
To be eligible for this credit, you must have at least one employee earning less than $150,000 annually. And, as you may know, even if you participate in a multi-employer plan designed to encourage small businesses to share the administrative duties associated with providing a tax-advantaged retirement plan, your credit I am eligible.
SECURE 2.0 also introduces employer contribution deductions. This may entitle companies to tax credits based on employee matching or profit-sharing contributions. This credit is capped at $1,000 per employee and will be phased out over five years. And companies with 51 to his 100 employees are likely to see even more cuts.
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Another SECURE 2.0 clause deals with Roth matching and non-selective donations. Starting this year, a 401(k) plan employee, along with eligible employees in his 403(b) plans for nonprofits and 457(b) plans for government employees, will be matched or unselected as a Roth you can choose to do – tax) contribution.
Prior to this change, employers were required to make these matching and non-selective contributions on a pre-tax basis. Of course, employees should be told that Roth-matching or non-selective donations count as taxable income. You can withdraw tax-free.
Looking ahead, SECURE 2.0 includes other options to make it easier for employers to offer retirement plans. After 2024, if you don’t already offer a retirement plan, you can offer a “starter” 401(k) or “safe harbor” 403(b) plan to employees who meet age and service requirements. These plans have lower contribution limits than typical 401(k) or 403(b) plans and do not allow matching or non-selective contributions. The Starter plan is therefore very attractive to companies with few employees.
Also, starting in 2025, 401(k) and 403(b) plans must automatically enroll eligible participants, but employees can choose to opt out. Businesses with 10 or fewer employees and businesses that have been in business for less than three years are exempt.
Being able to offer a retirement plan is a great asset for business owners who want to attract and retain good employees. And the SECURE 2.0 Act could make it easier to achieve this goal.
This article was written for the financial advisors of Edward Jones. Edward Jones and his affiliates and his financial advisors do not provide tax or legal advice. Chuck Smallwood, Bret Hooper, Tina DeWitt, Kevin Brubeck, Charlie Wick, Jeremy Lepore, Jessie Steinmetz, and Mark Eaton are financial advisors to Edward Jones Investments. Eagle is 970-328-0361, 970-328-0639, 970-328-4959 and Avon is his 970-688-5420.