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February 01, 2024 at 04:30 PM
I am a goal-setting nerd. And that means that this time of year, I get giddy about the opportunity to reflect and set intentions for the year ahead.
As an advisor, you are likely thinking about business goals and how you might improve client retention while also looking to build new revenue streams. As the head of Offer Strategy at Axos Advisor Services, one of my chief responsibilities is creating opportunities to help advisors achieve their goals.
And as my team and I continue to review the Setting Every Community Up for Retirement Enhancement (Secure) 2.0 Act, it is clear that RIAs are positioned to deepen existing client relationships with small-business owners. By leaning into your non-competitive partners, you can easily and affordably add employer-sponsored retirement plans simply by taking advantage of various provisions in the Secure 2.0 Act.
Roughly half of all Americans work in a business with fewer than 100 employees. While retirement plans are an important part of employee benefits, only around 30% of small businesses currently provide one to their employees, with most business owners that saying such plans are not financially feasible. Thus, there has never been a better time to start supporting your small-business clients with retirement plan services.
With the passing of the Secure Act in 2019 and the Secure 2.0 Act in 2022, several measures, such as lowering the cost of setting up a plan and paths to increase participation, have been taken to incentivize small business owners to establish retirement plans.
These include:
Startup Tax Credits
Under Secure 2.0, small-business owners with 100 or fewer employees who start a retirement plan may be eligible for tax credits that cover the majority of eligible startup costs. These tax credits are available for the first three years the plan is maintained, up to $5,000 per year — funding that will go directly to the advisor, recordkeeper and third-party administrator.
To qualify, the company must not have maintained a qualified plan in the three taxable years before the year of plan adoption, have at least one non-highly compensated employee and have no more than 100 employees making $5,000 or more in the prior year.
Employer Contribution Tax Credits
Secure 2.0 also introduces tax credits for employer-matching and profit-sharing contributions for small businesses with 100 or fewer employees for the first five tax years beginning when the plan is established. The tax credits can offset a significant amount of the initial cost burdens, allowing small businesses to make meaningful contributions to retirement plans that will continue to grow over time.
Auto-Enrollment Tax Credits
An additional tax credit of $500 is available for up to three years for small businesses with 100 or fewer employees that add an eligible automatic contribution arrangement to their plan. Not only does the tax credit further lower the costs of starting a plan, but 401(k) plans with an auto-enrollment feature have been shown to increase plan participation rates from 28% to 91%. This allows you to grow your book of business and assets under management with less effort on your part. Secure 2.0 requires all new qualified plans to add the contribution agreement by the 2025 plan year.
