James Zahansky, AWMA®
Principal/Managing Partner, Investment Advisor & Chief Goals Strategist
Small business owners, did you know that offering your employees a retirement savings plan can benefit your company? It can help attract new talent and keep your current employees happy. Also, there's some new legislation that can make it easier and cheaper for you to set up a plan. Here’s how you can get started.
New, Beginning This Year: Tax Credits for Startup Costs
SECURE 2.0 is a law that was signed by President Biden in December 2022. It offers potential tax credits to small businesses that start a retirement plan for their employees. But here's the catch: the plan has to meet certain requirements set by the IRS.
Under SECURE 2.0, small businesses with up to 50 employees can get a tax credit for the startup costs of the plan. The credit can be up to 100% of the eligible startup costs or $5,000 per year for the first three years of the plan.
Another plus is that small businesses can also get an additional tax credit for the contributions they make on behalf of their employees. The credit is a percentage of the eligible employer contributions, up to $1,000 per employee. However, this credit is only available for the first five years of the plan.
Auto-Enrollment Tax Credit
Want to encourage your employees to participate in the retirement plan? There's a $500 tax credit available to businesses that add an automatic enrollment feature to their 401(k) or SIMPLE IRA plans. This credit can be claimed for up to three years after adding the feature to the plan.
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Start Preparing Now So You Can Roll Out Your Plan On January 1 - Here's Why.
Now that you know about the benefits of offering a retirement plan, you might be wondering when is the best time to start one. Well, starting your plan on January 1 can actually be a smart move. Here are 5 reasons why:
1. Employees Have the Full Year to Make Contributions
Did you know that employees can only contribute a certain percentage of their paycheck to their retirement plan? And they can't contribute money from paychecks received before the plan started. So if your employees don't make enough money during the year, they won't be able to max out their contributions. By starting the plan on January 1, you give your employees the whole year to save for their future.
2. Matching Contributions Are More Predictable
Some businesses offer matching contributions to their employees' retirement accounts. But did you know that the matching is usually calculated on a per-pay-period basis? This means that if your plan starts late in the year, your employees might miss out on some matching contributions. By starting the plan on January 1, you can avoid this confusion and ensure that your employees get the full benefit of the match.
3. Nondiscrimination Testing Is Easier
Nondiscrimination testing is a fancy term for making sure that your retirement plan doesn't favor highly paid employees over lower-paid ones. Starting your plan on January 1 gives you a full year to monitor the plan's activity and assess its compliance with the rules. This can help you avoid unexpected costs and keep your plan fair for everyone.
4. Safe Harbor Plans Have a Deadline
If you want to set up a Safe Harbor 401(k) plan, you need to do it before October 1 of any given year. These plans are great for small businesses because they make it easier to pass testing. By starting your plan on January 1, you can take advantage of the Safe Harbor status and avoid compliance headaches.
5. It Keeps Things Clean and Simple
Starting a new benefit, like a retirement plan, at the beginning of the year just makes sense. It allows your employees to learn about all their benefits at once and keeps things organized. Plus, it's easier to remember one start date for all your benefits.
Starting a retirement savings plan for your employees is a smart move. And starting it on January 1 can make things even better. Don't wait until the last minute; get started now and reap the benefits.
At Weiss, Hale & Zahansky Strategic Wealth Advisors we help business owners get set up to successfully achieve their goals – including establishing a retirement savings plan for employees – through our Plan Well, Invest Well, Live Well™ strategic process. To learn more about how we can help you and your business, contact us at (860) 928-2341 or visit our website to request a complimentary consultation.
Presented by Principal/Managing Partner James Zahansky, AWMA®. Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. These materials are general in nature and do not address your specific situation. For your specific investment needs, please discuss your individual circumstances with your representative. Weiss, Hale & Zahansky Strategic Wealth Advisors does not provide tax or legal advice, and nothing in the accompanying pages should be construed as specific tax or legal advice. 697 Pomfret Street, Pomfret Center, CT 06259 and 392-A Merrow Road, Tolland, CT 06084. 860-928-2341. www.whzwealth.com.