Small Business Tax Advantages of Offering a 401(k) Plan
Many small business owners hesitate to offer a 401(k) plan because they assume it’s too expensive or complicated. But here’s the truth: thanks to recent legislation, offering a retirement plan has never been more affordable—especially when you take full advantage of the tax credits and deductions available to small employers.
This article breaks down the key tax benefits of starting or joining a 401(k), how they work, and how Apex Wealth Path helps you capture every available incentive.
Retirement readiness is a national priority, and to encourage employers to participate, Congress built a series of tax incentives into the SECURE Act and SECURE 2.0 Act. These laws help offset the administrative and contribution costs of offering retirement benefits—especially for small and mid-sized businesses.
If you’re launching a new 401(k) or Pooled Employer Plan (PEP), you may qualify for tax credits covering up to 100 percent of eligible startup costs, capped at $5,000 per year for employers with 50 or fewer employees. Those with 51 to 100 employees may qualify for a 50 percent credit. Eligible costs include plan setup, administration, employee education, recordkeeping, and compliance fees. These credits apply for each of the first three years, potentially saving up to $15,000 in total.
Beyond startup credits, small businesses can also claim a credit for employer contributions made to employee accounts—up to $1,000 per employee per year. This incentive phases out gradually for businesses with 51 to 100 workers and applies during the first five years of the plan. In other words, you’re rewarded not just for offering the plan but for funding it too.
All employer contributions to a 401(k)—whether matching or profit-sharing—are tax-deductible as a business expense. These deductions directly reduce your company’s taxable income and can meaningfully lower year-end tax liabilities. Employees benefit as well since their contributions are made on a pre-tax basis, reducing their taxable income and allowing them to keep more of their paycheck while saving for the future. Together, these provisions make a company-sponsored retirement plan one of the most effective recruitment and retention tools available.
In addition to federal credits, some states provide their own tax incentives for small businesses that establish retirement plans, further enhancing the savings potential. Apex Wealth Path helps confirm eligibility based on your state’s specific programs to ensure you don’t miss any available benefits.
By joining a Pooled Employer Plan, small businesses can multiply the value of these tax advantages. Through shared economies of scale, PEPs reduce plan administration costs while granting access to all the same credits and deductions. Apex Wealth Path manages the entire process, including setup documentation, eligibility confirmation for tax credits, and coordination with your accountant or payroll provider. Our goal is to make sure no incentive goes unclaimed.
Consider a real-world example. A company with 25 employees launches a PEP through Apex Wealth Path. It qualifies for approximately $4,500 in annual startup tax credits and $25,000 in employer contribution credits, along with full deductions on contributions. These combined incentives can offset nearly all plan costs in the first few years while simultaneously providing a stronger benefits package that helps attract and retain top talent.
Starting a 401(k) isn’t just an employee benefit—it’s a smart financial strategy that rewards your business, too. With Apex Wealth Path, you can implement a modern, compliant, low-cost 401(k) plan that delivers meaningful tax advantages while helping your employees secure their futures.
Stephen Bellosi, AIF®, AWMA®
Managing Partner, Apex Consulting