If you’re a small business in the United States, the SECURE Act 2.0 could save you money on the cost of offering retirement 401(k) benefits to your employees. Passed into law in 2022, this legal regulation provides a number of credits to business owners. By removing obstacles in the way of small business owners, SECURE Act 2.0 can increase retirement access for American workers.
How the SECURE Act Impacts Your 401(k) Retirement Plan
How much do employers pay for 401(k) plans? And how does SECURE Act 2.0 impact your 401(k) costs?
SECURE Act 2.0 changes employer costs in a couple of key ways. First, it reimburses a significant amount of your setup and administration costs for 401(k) retirement plans. It also gives you a 401(k) tax credit for making employer contributions to your employees’ accounts.
Setup and Administration: When you set up 401(k) plans, SECURE Act 2.0 will cover up to 100% of your setup costs. You can claim up to $5,000 during the first three years of your new plan.
Military Spouse Credit: If you currently employ the spouse of someone in the military, you may be able to get an additional 401(k) tax credit. This credit is worth up to $500, depending on how much you contribute to the employee’s 401(k) account.
Employer Contributions: When you provide a 401(k) benefit to your employees, you can get another tax credit based on your 401(k) contributions. If you have 50 employees or less, you can get up to $1,000 of your contributions covered per employee. The percentage that you receive varies based on the year.
- Year 1: 100%
- Year 2: 100%
- Year 3: 75%
- Year 4: 50%
- Year 5: 25%
For employers who have 51 to 100 employees, this credit is gradually phased out.
When Does SECURE Act 2.0 Take Effect?
Beyond learning the answer to, “How do 401(k)s work?”, you should also learn about when each tax credit becomes available. Because of how it is designed, the provisions in SECURE Act 2.0 don’t go into effect all at once. The first provisions in the bill started taking effect on January 1, 2023. Afterward, the remaining provisions will gradually take effect over the next four years.
As of December 31, 2023, employers can contribute to employees’ 401(k) accounts based on student loan payments. That means that employees can contribute to their retirement accounts or pay off their student loans, and they will still be able to get the same matching contributions.
If you implement automatic enrollment, you could be eligible for a $500 annual credit for up to three years. To qualify, you must start automatic enrollment in your 401(k) retirement plan before January 1, 2025. In 2024, SECURE Act 2.0 allows for matching contribution benefits. Meanwhile, the tax credits for startup and administration costs already took effect in 2023.
How Much Do Employers Pay for 401(K) Plans?
How much do employers pay for 401(k) plans? The typical employer has to pay startup costs for setting the plan up. There are also ongoing administrative costs, per-participant fees, and other plan-related fees. If you provide matching 401(k) contributions, the amount you end up spending will largely be related to how much your employees choose to contribute.
Fortunately, you can reduce a significant portion of these costs by getting SECURE Act 2.0 credits set up. Your HR and payroll provider can talk to you about tax credits that can reduce your 401(k) plan’s administration costs and startup fees. Plus, there are credits that will repay you for some of the matching contributions you make to your employees’ 401(k) retirement plans.
How to Set up 401(k) for Employees
How do 401(k)s work? More importantly, how can 401(k) platforms help you save time and money on your 401(k) setup process?
In a 2021 report by the National Institute on Retirement Security, more than 66% of Americans said that the country is facing a retirement crisis. More than half of these workers are worried about their own retirement security.
As Richard Tatum, president of Workforce Savings at Vestwell, recently pointed out in his interview with “Mission to Grow,” 85% of American workers want a retirement plan at their work. For many people, having a 401(k) plan is a prerequisite for working at a new job. Employees know that these plans pay off in the long run, so they expect workplaces to have them. If you don’t offer 401(k) benefits, you could be missing out on potential job applicants.
Fortunately, there is an easy way to set up 401(k) platforms and get a 401(k) tax credit for small business owners. By partnering with payroll providers like Asure, you can get help setting up a trustee, creating your summary plan description (SPD), and recording your 401(k) activities. There are many legal obligations involved in setting up a 401(k), so it’s important to work with someone who knows what they are doing.
Find Out More About Small Business Retirement Planning
How much do employers pay for 401(k) plans? And how do 401(k)s work? If you are wondering about how to go about setting up a 401(k), you’re not alone.
While enrolling in a 401(k) retirement plan can seem daunting at first, Asure can make the process easier. By providing 401(k) contributions to your employees, you can get tax credits that cover some or all of your 401(k) benefit costs. To learn more about how these plans work and get the support you need, connect with one of our small business payroll & HR experts today.