SECURE 2.0 Tax Incentives Provide Additional Reasons to Save in a 401(k)

• Published in: Journal of pension benefits Vol. 30; no. 4; pp. 11 - 13
• Main Author: Mayo, Kelsey
• Format: Journal Article
• Language: English
• Published: New York Aspen Publishers, Inc 01.07.2023
• Subjects: Cost control; Employees; Employers; Retirement plans; Startups; Statistical data; Tax credits
• ISSN: 1069-4064

Assuming the company is in fact eligible, the actual amount of the tax credit is the applicable percentage of the plan expenses (either 50 percent or 100 percent, based on the number of employees), but capped at the lesser of $5,000 or $250 times the number of nonhighly compensated employees eligible for the plan. [...]if the employer has fewer than 20 non-highly compensated employees who are eligible for the plan, they will not be able to receive the maximum $5,000 tax credit. [...]unlike the start-up cost tax credit, the company does not need at least one eligible non-highly compensated employee nor is the company totally ineligible simply because it sponsored another retirement plan in the three tax years before the current plan is adopted. [...]eligibility for this credit may be significantly broader than the start-up tax credit. [...]there's a real incentive for companies to consider a plan now even if they've been using an IRA-based program. [...]you determine the full amount of the credit and then multiply that by the applicable reduction percentage. Note that there is nothing preventing the owner or a family member from receiving a tax credit on his or her own contributions. [...]if the owner or a family member makes less than $100,000 or if it is a partnership, an LLC taxed as a partnership, or a sole proprietor (regardless of how much the owner makes, because self-employed individuals do not have FICA wages and therefore cannot exceed the $100,000 threshold)-the owner's contributions would create up to a $1,000 tax credit each year. [...]we'd expect more plans will be implementing automatic enrollment and will be eligible for this credit. Currently, the Saver's Credit is a tax credit that is based on the participant's Adjusted Gross Income (AGI) and amount of deferrals.