Can local small businesses offer a retirement plan? New tax credits could make a big difference

Retirement plans can provide employers with an essential tool for recruiting and retaining their workforce. Yet, many small employers struggle with the costs of establishing and the complexities of maintaining a retirement plan. With the passage of the Secure 2.0 Act of 2022, small employers have increased tax credits available to cover the startup costs of a workplace retirement plan and to make employer contributions to that plan.

Startup Tax Credits

Employers with up to 50 employees are now eligible for tax credits in the amount of 100% of the eligible costs of starting up a retirement plan.  Employers with up to 100 employees are eligible for tax credits in the amount of 50% of the eligible costs of starting up a retirement plan.  Employers with over 100 employees are not eligible for these tax credits. For all eligible employers, there is a $5,000 annual cap on these tax credits.  Tax credits of up to $5,000 are available for the first three years of when they either establish their own plan or join a Pooled Employer Plan.  As such, employers may receive up to $15,000 in startup tax credits. 

Eligible costs include the establishment or administration of an employer plan, or the retirement-related education of employees with respect to such plan. 

Employers are eligible for the tax credits if they have 100 or fewer employees who received at least $5,000 of compensation from the employer for the preceding year, had at least one non-highly compensated employee and did not have, in the three years prior to first receiving these tax credits, a prior plan for substantially the same employees.  Governmental and tax-exempt employers are not eligible for the tax credits.

Employer Contribution Tax Credit

Employers with up to 100 employees are also eligible for tax credits covering the costs of making employer contributions to a new defined contribution plan. Employers with up to 50 employees may receive tax credits amounting to 100% of employer contributions in the first and second year of plan establishment, 75% in the third year, 50% in the fourth year, and 25% in the fifth year. The tax credits are limited annually to $1,000 per employee earning not greater than $100,000. Employers with 51-100 employees are eligible for phased-out tax credits. For example, if an employer made matching contributions of $1,000 to each of its 25 employees earning less than $100,000, that employer would receive $25,000 in the first year of establishing the plan and $6,250 in the fifth year.

Pooled Employer Plans

Employers may use the startup tax credit to cover the costs of establishing their own plans or joining a Pooled Employer Plan.  Locally, The Central PA 401(k), by Conrad Siegel, is a Pooled Employer Plan that enables businesses with under 70 employees to offer a simple and affordable 401(k). The plan is:

  • Easy to join and easy to leave
  • Fully managed by retirement experts at Conrad Siegel
  • Priced competitively, built for employers with 1 to 70 employees
  • Flexible -total contribution flexibility in matching or profit sharing
  • Educated – employees receive online and personalized investment education

You should consult your tax adviser to determine whether you are eligible for these tax credits.

To learn more about the Central PA 401(k), by Conrad Siegel visit: