Small business owners wear many hats. When I started my own financial planning business, I was surprised at how many hours it took to run the office, market my product, and attend to record keeping for compliance. The part I loved—meeting with clients along with preparation and research for the meeting—took a back seat. There did not seem to be time to do everything.
Competition for product and employees is keen, and the small business owner must compete with much larger companies by offering attractive benefit packages.
Post COVID, help wanted signs seem to be everywhere. For small business owners, attracting quality employees can be a challenge, especially when a job seeker is considering multiple job offers. Most job seekers consider if a potential employer is offering a retirement plan as a benefit, and it can be a differentiating factor in the job seeker’s decision-making process.
Data gathered by SCORE, a nonprofit provider of mentor services to U.S. small businesses, shows that 34% of small business owners do not have retirement savings plans for themselves, and the fewer employees a business has, the less likely it is to offer a retirement plan for its employees.
On December 29, 2022, President Biden signed the SECURE 2.0 Act of 2022 into law. The Act included almost 100 provisions to offer employers new retirement plan options and enhance existing plans, help cover new retirement plan costs, and encourage employers and employees to start saving for retirement. This blog will cover provisions in the Act to increase and initiate new tax credits for small business employers.
It is part of a three-part series on the Secure 2.0 Act of 2022 which highlights selected provisions. Changes for employers who offer, or are considering, a company retirement plan are covered here. Changes to personal saving rules that affect Traditional and Roth IRAs are covered in another blog.
Some of the rule changes covered in the other blogs will become effective in the future. Both tax credits described below were effective January 1, 2023.
Increased the Tax Credit for Start-Up Retirement Plans—2023
This provision is meant to ease the burden of administrative costs to set up a new retirement plan for businesses with less than 50 employees. This provision increases the amount of tax credit from 50% to 100% of start-up costs. The credit can be taken only during the initial three years of the plan. The maximum credit is $5,000 per year. However, an additional $500 per year credit may be taken if the plan is set up with employee auto-enrollment for a total tax credit of $5,500 per year.
Created a New Tax Credit for Employers with Military Spouse Employees—2023
Military spouses often do not remain employed long enough to become eligible for their employer’s retirement plan or to vest in employer contributions. This provision addresses that issue. The tax credit is limited, however, to businesses with less than 100 employees.
To qualify for this tax credit, a business must allow a military spouse to become eligible for their company retirement plan within two months of their hire date.
The military spouse will then be eligible for any company match or “non-elective deferral” that he or she would have formerly been eligible for only after two years of service. The military spouse must also be immediately 100% vested in any employer contributions. An employer may rely on their employee’s certification that the employee’s spouse is a member of the uniformed services.
The employer tax credit equals the sum of $200 per military spouse, plus 100% of employer contributions up to $300 per military spouse, for a total maximum of $500 per military spouse. The employer is eligible to take the credit for three years for each military spouse. The employee must earn more than $5,000 but not be highly compensated.
The tax credit provisions of the SECURE 2.0 Act of 2022 covered above are meant to encourage small businesses to offer retirement plans and to ensure that military spouse employees are eligible for and have an opportunity to start saving. Employers benefit by attracting and retaining quality employees and both employers and employees benefit with a start toward a secure financial future.
If you offer a retirement plan for your employees, you can find out how the SECURE 2.0 Act of 2022 could impact you in part 1 of this three-part series.
Beverly Bowers’ diverse financial career included stints as a portfolio manager, stock and bond trader, mutual fund and ETF sales manager, and personal advisor and financial planner. She is a CERTIFIED FINANCIAL PLANNER ™ professional and served on the Board of Directors of Financial Planning Association of Greater Phoenix in various capacities including President and Chairman of the Board. Beverly is a member of the Arizona Hall of Fame of Financial Women International. During the isolation of COVID in 2020 and 2021 Beverly wrote and self-published How to Dress a Naked Portfolio: A Tailored Introduction to Investing for Women.
Primary Source: https://www.help.senate.gov/imo/media/doc/secure_20sectionbysection.pdf
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