Establishing a Retirement Plan? Don't Forget Small Business Tax Breaks, Oct. 14, 2021

Recent legislation has focused small business clients' attention on retirement plans and their obligations to employees. Some states already sponsor "auto IRAs" for workers without access to an employer-sponsored retirement plan. The Build Back Better Act would require employers who do not sponsor a retirement plan to automatically enroll employees in either an IRA or a 401(k)-type plan beginning in 2023. The "SECURE Act 2.0" also contains provisions designed to encourage more small businesses to offer retirement plans. Small business clients who are exploring their options in advance of government action should be reminded about valuable tax incentives designed to encourage workplace retirement savings options. The SECURE Act increased the tax credit for retirement plan startup costs so that employers can receive a $250 tax credit for every non-highly compensated employee (up to a maximum of $5,000 per year). The tax credit is available for up to three years and can be applied toward the administrative costs of maintaining the plan (and to participant education). Employers can also receive a $500 tax credit per year (for up to three years) if they add an auto-enrollment feature. For new plans, both tax credits are available. For more information on these tax credits, see Q 8564.