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Boosting Small Business Benefits: The Rise of Retirement Accounts

Small businesses are increasingly taking advantage of new tax credits to offer 401(k) retirement programs to their employees, thanks to the Setting Every Community Up for Retirement Enhancement (Secure) Act. If your small business hasn’t jumped on the bandwagon yet, now might be the perfect time to do so.

The Secure Act and Its Benefits

Implemented on December 29, 2022, the Secure Act makes offering retirement plans more attractive for employers, with the potential to improve retirement outcomes for employees. One such example is Rhett Stubbendeck, who introduced a 401(k) retirement program at his Omaha-based insurance company LeverageRx in January. Out of 20 employees, 15 have enrolled in the program so far, which offers a 100 percent match of contributions.

The Secure Act’s new provisions include a $1,500 credit for setting up a plan with automatic enrollment, making it more affordable for small businesses to offer retirement accounts. To qualify for the tax credit, a business must have at least one employee who made less than $135,000 in 2022, known as a “non-highly compensated” employee.

Increased Tax Credits and Incentives

Previously, employers with fewer than 100 employees were eligible for a three-year tax credit of up to 50 percent of administrative costs, with an annual limit of $5,000. The new law increased this credit to 100 percent of costs for new plans sponsored by employers with up to 50 employees. Additionally, there is a new credit for employer matching contributions, up to $1,000 per eligible employee or $5,000 in total contributions per year for five years.

State-Mandated Retirement Plans

States like California, Oregon, Illinois, and Colorado require businesses to either start their own retirement plan or enroll their employees in state automated programs called auto-IRAs. New York, Maine, and Oregon are set to implement similar programs in 2023. However, 401(k) plans can offer more benefits than IRAs for both business owners and employees, with a wider range of investment options and eligibility for tax credits.

A Win-Win for Employers and Employees

The changes brought about by the Secure Act result in a win-win situation for both employers and employees, making it easier for both parties to grow their retirement contributions. Small business owners can save money on taxes while rewarding their employees with retirement benefits. Offering retirement accounts not only helps businesses stay competitive in the job market but also contributes to the long-term financial security of their employees.

Now is the perfect time for small businesses to consider offering retirement accounts to their employees, leveraging tax credits and incentives provided by the Secure Act to build a more secure future for both the business and its workforce.