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Tax Credit for Small Businesses


Greetings from the Seth & Alexander team!


The Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) was approved by the U.S. Senate on December 19, 2019, as part of an end-of-year appropriations act and accompanying tax measure, and signed into law on December 20, 2019.


Currently, small businesses starting new 401(k) plans can get up to $500 per year for the first three years to help with 401(k) administrative costs. The SECURE Act increases this credit to up to $5,000 depending on how many non-highly compensated employees are eligible for the plan, and includes the following provisions: 


  • Makes it easier for small businesses to set up 401(k) plans by increasing the cap under which they can automatically enroll workers in “safe harbor” retirement plans from 10% of wages to 15%.

  • Provides a maximum tax credit of $500 per year to employers who create a 401(k) or SIMPLE IRA plan with automatic enrollment.

  • Enables businesses to sign up part-time employees who work either 1,000 hours throughout the year or have three consecutive years with 500 hours of service.

  • Encourages plan sponsors to include annuities as an option in workplace plans by reducing their liability if the insurer cannot meet its financial obligations.

  • Pushes back the age at which retirement plan participants need to take required minimum distributions (RMDs) from 70½ to 72.

  • Allows the use of tax-advantaged 529 accounts for qualified student loan repayments (up to $10,000 annually).

  • Permits penalty-free withdrawals of $5,000 from 401(k) accounts to defray the costs of having or adopting a child.


To see how the SECURE Act can help you, give us a call today.

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