Senators Maggie Hassan (D-N.H.) and Ted Budd (R-N.C.) have introduced a new bill to help small businesses set up retirement plans. The legislation seeks to increase the tax credit available to these businesses.
Bill Proposes Boosting Small Business Retirement Benefits
Senators Hassan and Budd introduced a new bill called the Retirement Investment in Small Employers (RISE) Act to support small businesses. The proposal aims to enhance retirement benefits for small business employees.
Small businesses, defined by the IRS as those with fewer than 100 employees, can claim a tax credit of up to $5,000 over three years. This credit applies if they initiate a simplified employee pension plan, SIMPLE IRA, or other 401(k) plans.
However, according to a recent news release from Hassan's office, this tax credit often falls short for the smallest businesses. The credit is $250 per employee, which may not be enough for many small enterprises.
The RISE Act ensures that all small businesses receive a minimum tax credit of $2,500. This boost is especially beneficial for companies with fewer than ten employees.
Senator Hassan emphasized the importance of enabling small businesses to compete with larger ones by helping them provide robust retirement plans for their employees. She urged her colleagues to support the bipartisan legislation, highlighting its potential to bolster small businesses and their workforce.
Senator Budd stressed the significance of offering additional tax incentives to small businesses. He stated that such incentives would help Main Street shops in North Carolina provide secure retirement plans for their employees. Budd expressed pride in collaborating with Senator Hassan on the bill, emphasizing its potential to empower individuals to secure their financial future.
The proposed RISE Act aims to address the challenges faced by small businesses in offering adequate retirement benefits, thereby promoting financial security for employees in the small business sector.
Tax Credits Available for New Retirement Plans
According to ASPPA, SECURE 2.0 brings a substantial rise in available tax credits for small employer plans compared to the original SECURE Act. These enhancements even cover expenses for running a small plan for three years.
Small businesses venturing into new retirement plans may find a helping hand in tax credits. Certain qualifying employers can benefit from these credits for the initial three years of plan maintenance.
The term "eligible startup costs" encompasses essential expenses incurred in setting up and managing the new plan and educating employees about it. These expenses may include document fees, advisor fees, plan documentation fees, and any other costs necessary for establishing and operating the plan.
Notably, expenses incurred in the year before the plan becomes effective may count as the first year of the three-year cycle for tax credit eligibility.
Under SECURE 2.0, plans created after December 29, 2022, must include an eligible automatic contribution arrangement (EACA) by the 2025 plan year. Despite adding administrative steps, this inclusion can bring benefits. Eligible small employers stand to receive an extra tax credit for the initial three tax years if they maintain the EACA feature.
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