Small businesses are the lifeblood of the American economy. According to a recent statistic, small businesses employ nearly 62 million people, or roughly half of the U.S. workforce.1
Many of our clients are small business owners who, when talking about their employees, often refer to them as “part of the family,” which is amazing to hear.
So, when Congress changed some rules in 2022–making it easier for small businesses to create retirement plans–our small business owners welcomed the news as a way to help their work families. Here’s a recap of how small business owners can take advantage of this new legislation.2
Tax credits doubled for new plans: The new rule increases the tax credit if a small business (fewer than 50 employees) wants to introduce a new retirement plan. Specifically, the tax credit increased to 100%, up from 50% (capped at $5,000) for three years. Essentially, this means a small business could see its total tax credit increase by $15,000.3
The new rule doesn’t specify what type of plan, so it’s up to the small business owners to review their choices and decide what works best. Some choices can include a SIMPLE-IRA, SEP-IRA or 401(k).4
Keep in mind that while we’re not tax experts, we are associated with companies that are. When tax law changes occur, we remind business owners that taxes are just one factor that needs to be considered when starting or updating a retirement plan. The high-level concepts that we introduce here are for informational purposes only. We encourage you to ask your tax professional for some guidance, or our planning department can provide you with a TAX ANALYSIS!
Be kind and compassionate to one another, forgiving each other, just as in Christ God forgave you. Ephesians 4:32
New credits added for employer contributions: A small business (<50 employees) can also receive a tax credit based on the percentage of employer contributions. This tax credit can be up to $1,000 per employee earning less than $100,000 in the period year. There are some nuances to this credit, however, so having some guidance is critical.3
Tax credit maintained for using auto-enrollment: A tax credit of up to $500 per year (for the first three years) may be available if auto enrollment is one of the plan’s features.3
“Remember, don’t rust out. Wear out,” wrote Mick Owens in his popular book, Diamond of Life: The Five P’s of Success and Significance. In his work, Owens reminds small business owners (as well as all others) to “keep serving where God has called you and planted you.”
For most, the decision to introduce or update a retirement plan should begin with a lot of reflection and prayer. If you decide to move forward and make the commitment, understanding all the retirement plan choices–as well as the potential tax incentives that might apply–may require the help of a team of professionals who have your best interests in mind.
We can help you create a strategy and coordinate with a team that’s needed for effective implementation.
- Artofmanliness.com, April 30, 2023
Thebulltucson.iheart.com, August 22, 2022
