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The Secure 2.0 401(k) Tax Credit Opportunity For Small Business

, , | October 16, 2023 | By
Secure 2.0 retirement plan tax credits


In today's highly competitive job market, small businesses have to find ways to attract and retain talent. Offering a 401(k) is one of those ways, in fact, for many job seekers, it's table stakes when considering a new position.

  • According to a report from Voya, 71% of Americans would remain with their current employer based on the availability of an employer-sponsored retirement savings plan. This figure jumped from 60% in October 2022.
  • Charles Schwab reported that 88% called a retirement plan a  “must-have” benefit and three in four would would turn down a new job without an available 401k.

Unfortunately, the costs associated with setting up and maintaining such a plan can be a major obstacle. This is where the Secure 2.0 tax credits can provide a solution for small businesses.

What are Secure 2.0 Tax Credits for Small Businesses?


By taking advantage of the Secure 2.0 tax credits, small businesses can not only provide their employees with a valuable retirement savings option but also enjoy a range of benefits themselves. These tax credits are specifically designed to assist small businesses in setting up and maintaining a 401k plan, helping to offset the costs associated with implementation. This means that small businesses can now overcome the financial obstacles that often deter them from offering a 401k plan to their employees.

The benefits of offering a 401k plan are numerous.

  • By providing a retirement savings option, small businesses increase employee loyalty and satisfaction, reducing turnover and creating a more stable work environment.
  • Offering a 401k plan can help small businesses attract top talent, stand out from competitors, and ensure a talented and dedicated workforce focused on long-term financial goals.
  • Implementing a 401k plan helps employees build a nest egg for their future and ensures financial security during retirement. This reduces financial stress, allowing employees to focus on their work and perform at their best.

Secure 2.0 Tax Credits Eligibility Requirements

In order to be eligible for Secure 2.0 Tax Credits, small businesses must meet specific requirements. This is to ensure that the tax credits are provided to those businesses that truly need support in establishing a 401(k) plan.

Here are some of the qualification criteria for Secure 2.0 Tax Credits:

  • Small businesses need to have 100 employees or fewer who earned a minimum of $5,000 in the previous year. This criterion ensures that the tax credits are directed towards smaller businesses that may have financial constraints in providing retirement savings options.
  • To qualify, the small business must provide retirement plan coverage to at least one employee who is not considered a High-Cost Employee (HCE). A non-HCE is defined as an employee who has a stake of more than 5% in the business or who earned over $135,000 in the previous year. This requirement ensures that a wider range of employees can benefit from the retirement plan.
  • In the three tax years before the first year of eligibility, it's important to ensure that the employees who received contributions or accrued benefits in another retirement plan sponsored by the business, a member of a controlled group that includes the business, or a predecessor of either, were not substantially the same employees. This requirement aims to ensure fairness and prevent businesses from continuously benefiting from tax credits while excluding certain employees from retirement plan benefits.

We recommend you consult a licensed tax professional, like our team at C&A, to ensure that all requirements are met and the application process is completed accurately.


How to apply for Secure 2.0 Tax Credits

To ensure a smooth application process, small businesses should follow these steps:

  1. Assess eligibility: Prior to submitting an application for Secure 2.0 Tax Credits, small businesses should carefully evaluate whether they meet the eligibility requirements outlined earlier in this blog post.
  2. Seek guidance from a licensed tax professional: In order to navigate the application process accurately and efficiently, it is highly advisable to consult with a licensed tax professional to ensure that all requirements are met and the application is completed correctly.
  3. Collect the required documentation: These include financial records, employee information, and any other pertinent documents requested by the tax authorities.
  4. Complete the application accurately: With the assistance of their tax professionals, small businesses should complete the application for Secure 2.0 Tax Credits accurately and provide all the required information. This will help expedite the review process and increase the chances of approval.
  5. Follow up and track progress: After submitting the application, small businesses should follow up with the tax authorities to track the progress of their application. This will allow them to address any additional requirements or provide any necessary clarifications promptly.

What should small businesses do now?

As we showed at the beginning of this post, more and more, prospective employees are requiring that their employers offer a retirement plan. There are clear opportunities for small businesses to leverage Secure 2.0 credits to help fund retirement plans for their employees and in doing so, make your business a more attractive place to work.

If you haven't done so already, reach out to a licensed tax professional to talk about your eligibility. The team at C&A would be happy to help.