Skip to main content

You are here


Fintech Friday: Calculating the SECURE 2.0 Small Business 401(k) Tax Credit

Future Focus

Small business tax credits contained in SECURE 2.0 make starting a 401(k) plan “essentially free,” a powerful incentive that offsets costs for employers who traditionally might have balked at the burden.  

And if business owner prospects still need to be convinced, new tools from Mobile, Ala.-based small-plan provider Employee Fiduciary lets advisors and potential sponsors do the math themselves. 

More specifically, two new tools help small businesses efficiently calculate their potential savings and estimate their 401(k) plan costs by leveraging recent SECURE 2.0 tax credits.

SECURE 2.0 significantly enhanced the tax credits available to eligible small businesses that start a new plan, add an auto-enroll feature or contributions made by employers,” Employee Fiduciary President and CEO Eric Droblyen said. “However, these credits can be difficult to calculate, making value less obvious to business owners.”

Referencing a recent Pew Charitable Trust study, he said 71% of small businesses without a 401(k) plan today listed cost as a reason why. While provisions included in the legislation target the coverage gap experienced by small business employees, the public still largely lacks awareness of what SECURE 2.0 does and doesn’t do. 

The calculators are designed to help owners appreciate how dramatically the credits can lower the cost of a new plan, Droblyen added, and many small businesses will pay nothing at all for a new plan’s first three years once the credits are applied.

“About 80% of our small business clients pay their 401(k) administration fees from a bank account instead of plan assets,” he noted. “The approach is popular because it’s usually a win-win for the business owner. They can grow their personal 401(k) savings faster while reducing their tax burden now. The new credits mean even lower taxes.”

One calculator is for business owners, and the second is for advisors and shows the latter how much of their fees would be covered by the credits. 

“The calculator has been thoughtfully designed to provide a seamless and intuitive user experience,” Droblyen concluded. “It is an effective tool for business owners to estimate their plan costs and potential savings. By answering just a few questions, the calculator takes into account not only Employee Fiduciary fees but also available tax credits. This empowers small business owners to make well-informed decisions when it comes to starting and maintaining a 401(k) plan.”