February 15, 2023
Article by Keith Mayfield, President Planit 401k
Do you know of a company who would benefit from adding a retirement plan as an employee benefit? In the example below, over 5 years, a company contributes $250,000 to employees at net cost of only $85,715 to a new 401k/403b plan.
With dramatically increased tax credits in the Secure 2.0 Act which passed in December of 2022, now is a great time for companies and organizations to explore adding a valuable 401k, 403b, SEP or SIMPLE retirement plan benefit.
For example, a company with 50 eligible employees can leverage the credits to contribute $50,000 to eligible employees' retirement savings and receive Employer Contribution tax credits of $50,000 offsetting this expense. Additionally, the company can receive up to $5,500 credits to offset the cost associated with administering up the plan for three years. This is an excellent opportunity for a company to achieve significant savings, offer a valuable employee benefit and help ensure a brighter tomorrow for both the company and its employees. As an example:
TAX CREDIT DETAILS
The tax credits apply to new retirement plans established in 2023 or 2024 and may also apply to plans established in 2021 and 2022. Companies that offered a retirement plan (401k, 403b, SEP, SIMPLE) in the prior three years may not be eligible.
Credit 1: Employer Contribution Credit
This credit is available for five years. The Employer Contribution Credit is available for companies or organizations who make a “matching”, “profit share” or “safe harbor” type of employer contribution. The eligible employer contribution credit is the amount of employer “matching”, “profit share” or “safe harbor” contributed to eligible employees (those who earn less than $100,000). The maximum annual employer contribution credit per eligible employee credit is based on the lessor of a declining schedule or $1,000. The maximum employer contribution credit amount is reduced by a 5-year declining schedule of 100%, 100%, 75%, 50%, 25%, 0%, of employer contributions to eligible employees. The credit also phases out 2% for each employee over 50 employees, thus no credit is available if over 100 employees.
Credit 2: Employer Setup, Administration, and Education Credit
This credit is available for three calendar years. The credit is $250 for each non-highly compensated employee (earning less than $150,000 in 2023) up to a $5,000 maximum credit (with a minimum credit of $500 for a company with 1 NHCE). This credit can be used to cover up to 100% of eligible expenses for companies with 1-49 employees and up to 50% of eligible expenses for companies with 50-100 employees. This credit is not available for companies with more than 100 employees.
Credit 3: Automatic Enrollment Credit
This credit is available for three calendar years beginning with the first plan year. The credit amount is $500 for including automatic enrollment as a plan feature.
The Secure 2.0 Act offers a tremendous incentive for companies to set up and benefit from a retirement plan. By taking advantage of the tax credits available, eligible companies can fund $250,000 of employer contributions over five years at a net cost of $85,715, including new plan costs. So, if you're looking to attract and retain top talent while reducing your tax burden, now is the time to explore the benefits of offering a retirement plan to your employees.
Neither the author nor his company provide legal, tax or accounting advise. Additional details and clarifications apply. Please best to consult your tax advisor or Planit 401k for additional information.
About the author--Keith Mayfield, AIFA®, CPFA®, CFS® is President of Planit 401k, a Bellevue based company specializing in helping companies and organizations startup and service 401k/403b type plans. He has specialized in 401k/403b plans for over 25 years, helping more than 1,000 companies improve their retirement plan. Contact Keith at keith@planit401k.com, 888-654-4015, or www.planit401k.com to setup a new 401k/403b plan and plan for your plan’s success!