Businesses that contribute to employee retirement plans, such as 401(k)s, SIMPLE IRAs, and SEP IRAs, can deduct those contributions as a business expense. This directly lowers taxable income while enhancing employee benefits.
Small businesses setting up a retirement plan for the first time may qualify for the Retirement Plans Startup Costs Tax Credit. This credit covers 50% of eligible startup costs (up to $5,000 per year for the first three years), making it more affordable to implement a plan.
When employees contribute to their retirement accounts, their taxable income for the year decreases, lowering payroll tax liabilities. Employers also benefit since pre-tax contributions lower overall payroll tax expenses.
• Contributions grow tax-free until withdrawal, allowing for greater compounding growth over time.
• Business owners who participate in the plan themselves enjoy the same tax advantages as employees.
• Employer matching contributions can be structured as an incentive to boost participation while optimizing tax efficiency.
The SECURE Act introduced an additional tax credit for businesses that implement automatic enrollment features in their 401(k) plans. This credit provides up to $500 per year for three years, further reducing costs.
Final Thoughts: Offering a retirement plan isn't just an employee perk—it’s a strategic financial decision that benefits both your workforce and your business. If you're considering setting up a plan, our experts can help you choose the best tax-advantaged option that aligns with your goals.
