Calculate Your Tax Savings Under The Secure Act 2.0

Oakwell Private Wealth Management |
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Financial Education

In the ever-evolving healthcare landscape, medical practices face many challenges, from keeping up with advancements in treatment to managing overhead costs. One crucial aspect often overlooked is the financial well-being of the practitioners and their staff. The Secure Act 2.0, an extension of the original Secure Act, introduces powerful tax credits that incentivize medical practices to initiate 401(k) retirement plans for their staff, but what does that mean for your practice? And what is it going to cost you?  

Let's delve into the benefits of implementing a 401(k) plan, with an example illustrating the substantial tax credits that can be realized.

The Secure Act 2.0: A Game-Changer for Medical Practices

The Secure Act 2.0, signed into law in 2023, brings a host of tax incentives aimed at encouraging businesses, including medical practices, to establish retirement plans for their employees. These provisions build on the foundation set by the original Secure Act, which sought to increase access to retirement savings for workers.

Why Should Medical Practices Embrace 401(k) Plans?

  • Attract and retain top talent: In a competitive job market, offering a 401(k) plan can be a game-changer for medical practices looking to attract and retain high-caliber professionals. It demonstrates a commitment to employee well-being beyond the immediate compensation, enhancing job satisfaction and loyalty.
  • Tax advantages for the practice: The Secure Act 2.0 introduces substantial tax credits for medical practices that initiate 401(k) plans. These credits can significantly offset the costs associated with establishing and maintaining a retirement plan.
  • Personalized retirement solutions: A 401(k) plan allows employees to tailor their retirement savings to meet their individual needs, empowering them to take charge of their financial futures and leading to a more satisfied and financially secure workforce.

The Tax Benefits of Secure Act 2.0

The following is a hypothetical example to illustrate the tangible tax credits a medical practice could realize by adopting a 401(k) plan under the new Secure Act 2.0.

Hypothetical Medical Practice:

  • Number of Employees: 15
  • Average Annual Compensation: $80,000
  • Total Annual Compensation: $1,200,000
  • Percentage of Income Contributed to 401(k) by Employees: 5%
  • Employer Match: 3%

Tax Credits Under Secure Act 2.0:

  • Start-Up Credit: The practice can receive a tax credit of up to $5,000 per year for the first three years to offset the costs associated with establishing the 401(k) plan. Total Start-Up Credit Over Three Years: $15,000
  • Auto-Enrollment Credit: By implementing auto-enrollment for employees, the practice can receive an additional credit of up to $500 per year for three years. Total Auto-Enrollment Credit Over Three Years: $1,500
  • Employer Matching Contribution Tax Credit: The new legislation also offers a tax credit for employer matching or profit-sharing contributions for the plan's first five years. The credit is for businesses with up to 100 employees. However, the credit is reduced by 2% per employee over 50 employees earning less than 100,000/year. The maximum credit is $1000 per year for each of those employees.
  1. 100% of employer contributions for the first two years after the plan is created
  2. 75% in year three
  3. 50% in year four
  4. 25% in year five Total Small Employer Pension Plan Credit Over Three Years: $69,000

Total Tax Credits Over Five Years: $93,000

The Secure Act 2.0 presents an excellent opportunity for medical practices to secure their employees' financial futures and realize significant tax benefits for the practice itself. By taking advantage of the available tax credits and offering a 401(k) plan, medical practices can attract and retain top talent while bolstering their financial well-being.

In an industry that demands excellence in patient care, investing in the well-being of your workforce through a 401(k) plan is a strategic move that benefits both employees and the practice. Take advantage of the tax advantages provided by Secure Act 2.0 - consider starting a 401(k) plan for your medical practice today. Your employees and your bottom line will thank you.

Calculate your savings using our Secure Act 2.0 Tax Credit Calculator