Small Business Retirement Plans Made MoreRewarding with New Tax Credits
Many business owners focus their energy on growing their company but often delay establishing a personal retirement plan—leaving much of their wealth concentrated in a single, illiquid asset: the business itself. The SECURE Act 2.0 now offers a compelling reason to act. Substantial new federal tax credits can help small businesses offset both the costs of starting a small business retirement plan and the contributions made on behalf of employees, making this one of the most tax-efficient ways to diversify and build long-term wealth outside the business while attracting and retaining key employees.
Why a Retirement Plan Matters
Below are some of the benefits of providing retirement plans for employers:
Employee Attraction and Retention. Offering a company-sponsored retirement plan demonstrates a commitment to employees’ long-term financial well-being. According to a 2022 Global Benefits Attitudes Survey, 47% of employees view retirement benefits as important when joining a firm, and 60% cite it as a reason to stay.1 A well-designed plan strengthens loyalty, enhances morale, and helps recruit top talent in an increasingly competitive job market.
Financial Education and Engagement. Retirement plans also serve as a foundation for employee financial literacy. Ongoing education helps employees make informed saving and investment decisions—reduces stress and increases productivity. Financially secure employees are more focused, more engaged, and more confident about their future.
Flexible Plan Design Options. Small business owners can select from a variety of plan types—such as 401(k), SIMPLE IRA, or SEP IRA—and can customize features like employer matching, profit sharing, or automatic enrollment. Plans can be structured to meet goals such as maximizing owner contributions, rewarding key employees, or minimizing costs.
Substantial Tax Benefits. Business owners and employees can make significant pre-tax or after-tax Roth contributions to a business retirement plan. For 2025, individuals may contribute up to $23,500 to a 401(k) (plus a $7,500 catch-up for those age 50 or older). Including employer matching and profit sharing, total annual contributions may reach $70,000—far exceeding IRA limits.
The Secure Act 2.0 Credits
A New Incentive to Act. The SECURE 2.0 Act greatly enhances the incentives for small businesses to start a retirement plan. Two main types of tax credits are now available—one for plan startup costs and one for employer contributions, along with an additional credit for automatic enrollment.
Startup Plan Cost Tax Credit.
This credit helps offset the administrative and setup costs of launching a new retirement plan, including financial and record keeping fees.
Who qualifies: Businesses with 100 or fewer employees who earned at least $5,000 in the prior year and who haven’t offered a similar plan in the past three years.
Credit amount:
100% of eligible costs (for employers with 50 or fewer employees)
50% of eligible costs (for those with 51–100 employees)
Maximum annual credit: The greater of $500 or $250 × the number of eligible non-highly compensated employees (NHCEs), up to $5,000 per year.
Duration: Available for the first three years of the new plan.
This means that a business with 10 qualifying employees could receive up to $2,500 annually in tax credits, potentially covering most or all of the plan’s initial expenses.
2. Employer Contribution Tax Credit.
This new credit provides additional benefits based on contributions made by the employer to employees earning less than $100,000 per year.
Credit amount: Up to $1,000 per employee annually, based on employer contributions, over the plan’s first five years.
Phase-down schedule:
Year 1–2: 100%
Year 3: 75%
Year 4: 50%
Year 5: 25%
Eligibility: Applies to 401(k), SEP, and SIMPLE plans with no more than 100 employees. For employers with more than 50 employees, the credit phases down by 2% for each employee above 50.
3. Automatic Enrollment Credit.
Employers who include automatic enrollment in their plan can earn an additional $500 annual credit for the first three years. SECURE 2.0 encourages automatic enrollment as it improves employee participation and long-term savings outcomes.
Bringing It All Together
When combined, these credits can provide up to $16,500 or more in total first-year tax savings for qualifying small businesses.
For example, a firm with 10 employees could receive:
$2,500 startup cost credit
$9,000 variable contribution credit
$500 automatic enrollment credit
Total potential year-one tax savings: $12,000.
Beyond tax incentives, the greater benefit is that these plans help business owners build personal wealth outside of the company while creating a culture of financial security within the business to help attract and retain key employees.
Getting Started. Each business has unique goals, whether maximizing owner contributions, rewarding key employees, or enhancing employee retention.
Contact us to explore information and plan design options for implementing a tax-efficient retirement plan.
Plan with confidence and live with purpose!
About the Author
Tim Hudson, CFP®, APMA®, CEPA, CLU, ChFC, CRPS®, is a Certified Financial Planner® and Certified Exit Planning Advisor® and has over 25 years of experience specializing in advanced investment, retirement, business, and estate planning strategies designed to help high net worth individuals and business owners grow, preserve, and distribute wealth tax-efficiently.
Tim founded Wealthtrition.com to provide advanced wealth education, resources, and planning services for individuals and business owners.
You can reach Tim at (281) 477-3847 or tim@SilverStarWealth.com.
SilverStar Wealth Management, Inc.
17844 Mound Rd., Suite E, Cypress, TX 77433
(281) 477-3847 | www.SilverStarWealth.com
Important Disclosure
This material is intended for informational purposes only and is not intended to be a substitute for specific individualized tax or legal advice, as individual situations may vary. Securities offered through Kestra Investment Services, LLC, member FINRA/SIPC (Kestra IS). Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS). SilverStar Wealth Management, Inc., Bluespring Wealth Partners, LLC, Kestra IS, and Kestra AS are affiliated through common ownership by Kestra Holdings.
Investor Disclosures: www.kestrafinancial.com/disclosures
You should consult with appropriate financial, tax, or legal professionals before implementing any considerations discussed.