Small Business Retirement Options and the SECURE Act 2.0 for Employers

The recently passed SECURE Act 2.0 has significant implications for retirement planning. It provides enhanced financial incentives for small businesses. These changes include a starter 401(k) that allows employees to defer up to the IRA limit, a Roth option and more generous catch-up contributions. Plus, there are new rules on top-heavy testing and broader part-time employee eligibility in employer-sponsored plans.

Tax Credits

A retirement plan is valuable for employers to attract and retain employees. SECURE Act 2.0 provides numerous tax incentives to encourage small businesses to start or increase their goals. However, these changes also require careful consideration to ensure they are implemented correctly to provide maximum benefits for your company and its employees. One of the most significant provisions is a new credit that reduces startup costs and administrative expenses for small businesses with up to 100 employees contributing to a newly established defined contribution plan. This is designed to offset the initial cost of installing a program and will be applied against the employer’s income tax liability. The new law also makes it easier for part-time employees to become eligible to participate in an employer’s retirement plan by reducing the eligibility waiting period from three years to two years, beginning in 2025. It also allows participants to automatically roll over their accounts into a personal IRA if certain conditions are met when they leave a job. While pushing the RMD age to 73 has garnered the most attention, many other aspects of the new law offer retirement savings incentives and boost tax benefits for employees and business owners. Taking advantage of the right opportunities will help make your small business more competitive in recruiting, especially when competing with larger companies that can offer the “must-have” benefit of a retirement plan.

Plan Eligibility

The SECURE Act 2.0 provides new incentives for retirement planning, enabling employees to save on a tax-advantaged basis and increasing employer match rates. It expands automatic enrollment to include employees who may have yet to participate in a plan. It also changes required minimum distributions and simplifies some other aspects of the law. A key section of the Setting, Every Community Up for Retirement Enhancement Act, focuses on small businesses’ ability to start new plans. Different areas of the Act focus on expanding access to MEPs, making it easier for small businesses to join unrelated companies in offering retirement plans and lowering plan management fees. It also reduces the age at which a retiree must begin taking their first required minimum distributions (RMD) from 3 to 2 years and removes a penalty for missed RMDs. The Act also introduces a starter 401(k) that allows companies to establish a 401(k) with only employee deferrals and no employer contributions. This is an attractive option for companies that still need to be ready to sponsor a traditional 401(k) because it avoids nondiscrimination testing.

Catch-Up Contributions

Like DJs wanting to fill the dance floor, federal regulators encourage small businesses to offer retirement plans. One of the many incentives introduced by the new law is a tax credit covering up to half the cost of establishing and administering a program. This is particularly valuable to small firms with 50 or fewer employees, of which only about half have a company-sponsored retirement plan. This credit can also help smaller firms cover the costs of an automatic enrolment program and help them meet the requirements to provide a safe harbor plan. In addition, the new law expands catch-up contributions to individuals age 50 and over. Individuals can now make pretax and Roth contributions up to the IRS limit of $145,000 (effective 2024, as indexed). Finally, the law changes the eligibility rules for part-time workers and reduces the waiting period to become eligible for a retirement plan from 3 to 2 years starting in 2025. In addition, the law provides a three-year credit to offset the administrative costs of setting up and maintaining a small employer pension plan. This is especially helpful for smaller companies that need help to afford a full-service HR solution, such as an employee benefits agency.


With the recent passage of the Setting Every Community Up for Retirement Enhancement Act, small businesses have new incentives to establish and manage a retirement plan. These incentives reduce startup costs, increase maximum annual contribution limits, and lessen administrative burdens. As with any complex legislation, it’s wise to consult a local Thrivent financial advisor about the specific variables that apply and how they might impact your business. For example, for small businesses that have 50 or fewer employees, SECURE 2.0 doubles the existing tax credit for startup costs, allowing you to claim 100% of your eligible expenses (up from 50%), capped at $5,000 per year for the first three years your plan exists. The credit is also extended to small businesses that join an existing multiple-employer program, reducing your administration expenses even more. Another key change is the ability to defer the first required minimum distribution (RMD) until age 73. This is a significant extension, as you might have to pay a penalty for missing this deadline under the old rules. However, it’s important to note that the RMD deadline still applies to anyone over 72 and that they still need to take an RMD. The bill also increases the penalty to 50% for any RMDs missed after age 73. This is a significant change that could be costly for many retirees.