The Secure Act 2.0 offers new tax credits to small businesses that start a new retirement plan after 2022.
The Secure Act 2.0 aims to make it easier for small businesses to offer their employees a retirement plan. Here are two of the tax credits being offered to small businesses that start a new 401(k) after 2022.
Retirement Administrative Costs Credit
There is a tax credit for administrative costs for small businesses (up to 50 employees) of 100% of qualified start-up costs for new plans for three years.
You must have at least one “non-highly compensated” employee (NHCE) to qualify. A NHCE is a non-owner employee who made less than $135,000 the previous year.
The credit is capped at $5,000 annually. It is applied to 100% of the costs of the new plan & is based on the greater of $500 or $250 per NHCE. Your practice could get up to $15,000 by year three if you start a 401(k) plan.
Employer Contribution Credit
For new plans, there is a tax credit for employer matching or profit-sharing contributions for the first five years. This credit is capped at $1,000/per employee per year and is phased out over five years as follows:
Years One-Two: 100% of employer contributions.
Year Three: 75% of employer contributions.
Year Four: 50% of employer contributions.
Year Five: 25% of employer contributions.
Please note that a deduction generally does not apply if using a tax credit.
Talk to us today, and we will help you determine which 401(k) plan is best for your dental practice.
References
Back to issue
