Retirement planning might not be the first thing that comes to mind when you’re running a small business. You’re likely focused on keeping customers happy, managing your team and balancing your budget. But offering a good retirement plan can be one of the smartest moves you make for both your employees and your business. Fortunately, the SECURE Act benefits small business owners by making it easier and more affordable to provide retirement plans.
The SECURE Act short for “Setting Every Community Up for Retirement Enhancement” was first signed into law in late 2019. In 2022 it was updated with the SECURE Act 2.0 which brought even more benefits for small business owners. These laws aim to help more Americans save for retirement and they do this by making it simpler for businesses especially the small ones to offer retirement savings plans.
In this article, we’ll break down how the SECURE Act works and explain it in clear and simple terms how it can help you as a small business owner.
Starting a Retirement Plan is Easier and Cheaper
One of the biggest challenges small business owner’s faces is the cost and complexity of offering a retirement plan. In the past, setting up a 401(k) or similar plan could be expensive and time consuming especially if you only had a few employees.
The SECURE Act helps by increasing the tax credits available to small businesses that start a retirement plan. Previously, businesses could get up to $500 per year for three years. Under the new rules, the credit has been increased to up to $5,000 per year depending on how many employees you have. That’s a potential $15,000 over three years to help cover start-up costs.
And that’s not all. If you add automatic enrolment to your retirement plan where employees are automatically enrolled unless they choose not to be you can get an extra $500 per year for three years. This makes it even more affordable to offer a plan and encourages more employees to start saving.
Small Businesses Can Team Up to Save Costs
Another important change the SECURE Act brought is the expansion of what’s called “Multiple Employer Plans” or MEPs. These are now often referred to as “Pooled Employer Plans” or PEPs. In the past, only businesses with something in common (like being in the same industry) could join together to offer a retirement plan. Now, thanks to the SECURE Act unrelated small businesses can pool together and offer a single retirement plan.
This change is a big deal. It means that even very small businesses can join forces to reduce costs, share administrative duties and offer a better-quality plan to their employees. It’s like buying in bulk you save money and get more for your investment.
SECURE Act benefits small business owners who felt retirement plans were out of reach this new option makes them far more attainable.
More Flexibility with Deadlines and Employee Eligibility
The SECURE Act benefits small business owners with more flexibility in how and when they offer retirement plans. For example, in the past you had to establish a retirement plan by the end of the calendar year in order to claim a tax deduction for that year. Now, you have until your business’s tax filing deadline including extensions to set up the plan. This gives you more time to make decisions and reduces the pressure at the end of the year.
Another helpful update is related to part time employees. Before employers could require employees to work at least 1,000 hours in a year before they could join the company’s retirement plan. But the SECURE Act changed that. Now, if an employee works at least 500 hours per year for three straight years they can become eligible to join the plan.
This change is especially useful for businesses that rely on part time or seasonal help. It allows more of your workforce to benefit from retirement savings while helping you create a more inclusive and appealing workplace.
Attracting and Keeping Good Employees
As a small business competing with larger companies for talented workers can be tough. Big companies often offer generous benefits including retirement plans with matching contributions. That can make it hard for small businesses to stand out in the job market.
But with the help of the SECURE Act small business owners can now offer competitive retirement benefits at a lower cost. Having a retirement plan in place even if you can’t match contributions right away shows employees that you’re invested in their future. It also helps with retention because employees are more likely to stay at a job that offers long term financial security.
Offering a 401(k) or similar plan doesn’t just benefit your employees it benefits your business too. Happy financially secure employees tend to be more productive, loyal and motivated.
Big Tax Savings for Business Owners
A major SECURE Act benefit small business owners can attain is the opportunity to unlock valuable tax savings. As mentioned earlier you could qualify for up to $15,000 in tax credits just for starting a plan. Add another $1,500 if you include automatic enrolment and you’re looking at up to $16,500 in credits over three years.
But there’s more. When you contribute money to your employees’ retirement accounts, those contributions are usually tax-deductible. That means you can reduce your business’s taxable income by helping your employees save for the future.
It’s a win-win situation you get a tax break, and your employees get a stronger retirement plan. These savings can add up quickly and provide a big boost to your business’s financial health.
New Perks from SECURE Act 2.0
When Congress passed the SECURE Act 2.0 in 2022 it added even more benefits for small business owners. One of the biggest updates is an even larger tax credit for employer contributions. If you have 50 or fewer employees, you can now get a tax credit that covers up to 100% of the contributions you make for your workers during the first couple of years of your plan up to certain limits.
There are also new rules that make it easier to automatically enrol employees and increase their contributions over time. This encourages higher savings rates which helps employees build a stronger financial future.
Another improvement is the allowance for penalty free withdrawals in some emergency situations like illness or family hardships. While retirement savings are meant for the future this flexibility makes the plans more practical for real life situations which employees appreciate.
A Smarter Way to Grow Your Business
When small businesses offer retirement plans it’s not just about ticking a box or following a trend. It’s about creating a stronger more stable workplace. Thanks to the SECURE Act offering a retirement plan is no longer just a luxury for large corporations. It’s a realistic affordable option for small businesses of all kinds.
Whether you run a coffee shop, a construction company, a tech start-up or a family-owned retail store offering a retirement plan can help you attract better talent, reduce turnover and build a positive workplace culture. And with all the tax credits and new options available it might be easier to get started than you think.
If you’ve been considering offering a retirement plan but weren’t sure how to start or how much it would cost now is a great time to look into it. Talk to a financial advisor or retirement plan provider to learn more about your options under the SECURE Act.
Final Thoughts On How The SECURE Act Benefit Small Business Owners
The SECURE Act and it’s followed up SECURE Act 2.0 have opened new doors for small business owners. These laws make it easier, cheaper and more beneficial to offer retirement savings plans to employees. From large tax credits to flexible rules and better employee engagement the advantages are clear.
By using the tools and support provided through the SECURE Act small business owners can not only help their teams build a better future but also strengthen their own businesses in the process. It’s a smart investment in people and in long-term success.
