Retirement Plan Tax Perks That Can Pay Now & Later

Owners with 50 or fewer employees might shy away from small business retirement plans thinking, “Yet another chunk of change going toward business expenses.” The incessant demands can be exhausting, especially if you’re strapped for time. So why bother?

Thanks to recent legislative changes, offering a small business retirement plan has never been more affordable. Tax credits designed to offset administrative costs and encourage participation can make establishing a 401(k) quicker and nearly cost-free for the first few years.

As we enter the fourth quarter, now is the ideal time to develop a 401(k) plan. Leveling up your employee offerings could be a critical step for ensuring your business’s growth through 2025 and beyond.

Leveraging the Retirement Plan Tax Credit 

SECURE Act 2.0 is a bipartisan initiative to help Americans achieve retirement security while easing the entry point for business owners. For companies with 50 or fewer employees, the startup costs tax credit covers up to 100% of administrative costs associated with starting a retirement plan for the first three years, with a maximum credit of $5,000 per year. The maximum savings cover up to $15,000, virtually eliminating setup costs for many small businesses (IRS—Small Business Retirement Plan Tax Credits). 

Tax-Advantaged Retirement Planning Services

That said, the tax credits introduced under SECURE Act 2.0 for general administrative costs may indirectly include costs associated with hiring an investment manager, otherwise known as an ERISA 3(38) fiduciary.

Shelton’s Retirement Planning Services allows the employer to transfer the fiduciary responsibility to qualified investment professionals. Our U.S.-based team helps you, the plan sponsor, maximize tax benefits while doubling down on the impact of contributions to employee retirement accounts. 

Boost Participation with Auto-Enrollment and Employer Match Credits

Come 2025, new mandatory auto-enrollment for 401(k) and 403(b) plans will take effect, with a minimum contribution rate of 3% of employee compensation. Albeit substantial, the onset of costs is alleviated— small businesses that apply the auto-enrollment feature to the retirement plan they offer can qualify for a $500 tax credit for three years, applicable to both new and existing plans. This credit can be combined with the start-up tax credit for greater savings.

To sweeten the pot, incentivizing your employees to save for their future introduces tax credits that can reduce the financial burden of direct contributions to their 401(k) accounts. If your business with 50 or fewer employees makes employer contributions, tax credits can offset up to $1,000 per eligible employee, with a maximum of $50,000 in the first year. Phasing out for companies with 51-100 employees. 

These tax credits serve as a financial catalyst, encouraging employees to save more while making plan creation more accessible for employers.

The Hidden Costs of Skipping Retirement Offerings

Incentives available in the first few years of offering a retirement plan should make it an easy decision for most businesses. However, Pew Trusts suggests that 40% of small-business employers don’t offer retirement benefits, updated as recently as July 2024. 

The long-term costs of not providing a retirement plan could be significant. Those who hesitate risk being outstripped by more proactive competitors: a 2024 survey by Morgan Stanley reveals that 87% of employees consider retirement offerings a critical factor when choosing or staying at a job. And tax-payers pay the price of insufficient retirement savings. Inadequate retirement savings will drastically increase public assistance costs by $1.3 trillion in the next 20 years.

The Lasting Impact of the 401(k)

A 401(k) plan is more than a bullet point to add to the ‘Featured Benefits’ section on your LinkedIn job postings; it’s the lifeblood for economic stability. Without a plan, employees tend to save significantly less for retirement, which directly impacts their long-term financial security and reduces the income available to them during retirement.

Approximately 56 million private-sector workers currently lack access to a workplace retirement plan. This gap in savings poses a severe challenge for future retirees, many of whom may need more resources to maintain their standard of living.

Overcoming Barriers for Small Business Retirement Plans

Our expert support from Shelton Retirement Services can answer any of your concerns about complexity or costs. We can help you navigate plan creation, switch from a previous plan, ensure compliance, and offer easy administration options.

Our U.S.-based professionals are always available to support you and your employees. Whether starting a new plan or switching to one that better suits your needs, now is the time to act. Begin 2025 on the right foot with Shelton’s Retirement Planning Services and enjoy the immediate and long-term benefits of becoming a plan sponsor. 

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