What is the SECURE Act 2.0? How it Helps Entrepreneurs Save on Taxes & Boost Retirement Savings

The SECURE 2.0 Act, enacted in December 2022, introduced sweeping changes to retirement savings plans—changes that can significantly benefit entrepreneurs and small business owners looking to optimize their tax strategies. If you’re a business owner aiming to maximize deductions while enhancing your employees’ retirement benefits, this legislation offers compelling opportunities.

Here’s what you need to know:

1. Mandatory Automatic Enrollment – What It Means for Your Business (if you have more than 10 employees and your business is more than 3 years old).

Starting in 2025, new 401(k) and 403(b) plans must automatically enroll employees at a minimum contribution rate of 3%, increasing annually by 1% up to 15%, unless employees opt out. This is the employee’s contributions - NOT the employer’s match.  While this sounds like more administrative work, it can actually be a game-changer for small businesses.

Tax Benefits: Contributions you make to your employees’ accounts are deductible, reducing your taxable income.

Talent Retention: Offering a strong retirement plan makes your business more attractive to employees, reducing turnover and hiring costs.

2. Tax Credits for Small Business Owners – Free Money for Setting Up a Retirement Plan

If your business has 50 or fewer employees, you can now receive a 100% tax credit for qualified start-up costs associated with setting up a new retirement plan. That’s up from the previous 50% limit, making it much easier to implement a plan without the burden of upfront costs.

Additional Tax Credit: Employers can also claim up to $1,000 per employee in additional tax credits for five years, helping offset contributions for employees. Only employees compensated less than $100,000 qualify for the employer tax credit.

Why This Matters: If you’ve been on the fence about offering a retirement plan, the government is essentially paying you to do it.

3. Roth Contributions Expansion – More Control Over Taxable Income

SECURE 2.0 allows employers to let participants designate employer matching and nonelective contributions as Roth (after-tax) contributions rather than pre-tax. This can be a strategic tax move.

For You: Roth contributions mean tax-free withdrawals in retirement, providing more flexibility in long-term tax planning.

For Employees: Younger employees or those in lower tax brackets can take advantage of tax-free growth and withdrawals in retirement.

4. Expanding Eligibility for Part-Time Employees

For entrepreneurs with long-term, part-time employees, SECURE 2.0 mandates that employees working at least 500 hours per year for two consecutive years must be allowed to participate in retirement plans. This expands retirement savings opportunities for more workers while also providing additional tax deductions for employers.

Potential Tax Savings: Contributions made to part-time employees' accounts can also be deductible, helping lower overall business tax liability.

5. Simplified W-2 Reporting – Less Paperwork, More Compliance

The IRS has updated W-2 reporting guidelines under SECURE 2.0 to reflect employer contributions and incentives. Employers need to ensure they’re correctly reporting retirement plan contributions on Forms W-2 to remain compliant and avoid penalties.

The Bottom Line – Why Entrepreneurs Should Take Advantage of the SECURE Act 2.0

The SECURE 2.0 Act presents a huge opportunity for tax-savvy entrepreneurs to simultaneously reduce their tax burden and enhance employee benefits. With expanded tax credits, simplified administration, and increased flexibility, now is the ideal time to implement or improve a retirement plan for your business.

If you’re looking to maximize tax savings while securing your financial future, let’s discuss how SECURE 2.0 fits into your business strategy. Reach out today, and let’s make tax savings work for you!

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