Navigating Retirement Plans During Tax Season: A Guide for Business Owners

Posted February 7, 2025

As tax season approaches, business owners have a unique set of responsibilities and opportunities regarding their employer-sponsored retirement plans. Proper management of these plans can not only ensure compliance with tax laws but also maximize benefits for both the business and its employees.

Understanding Employer-Sponsored Retirement Plans

Employer-sponsored retirement plans are savings plans offered by employers to help employees save for retirement. The most common types include¹:

401(k) Plans. These are the most popular employer-sponsored retirement plans. Contributions are made with pre-tax dollars, reducing your taxable income for the year. Employers often match a portion of your contributions, which is essentially free money for your retirement.

Roth 401(k) Plans. Contributions are made with after-tax dollars, meaning you won’t get a tax break now, but your withdrawals in retirement will be tax-free.

403(b) Plans. Similar to 401(k) plans but typically offered by public schools and certain non-profit organizations.

457 Plans. These are available to state and local government employees and some non-profit organizations. They offer similar tax benefits to 401(k) plans.

SEP IRAs and SIMPLE IRAs. These plans are often used by small businesses and self-employed individuals. They offer tax-deferred growth and can be easier to manage than other types of plans.

Tax Benefits of Employer-Sponsored Retirement Plans

One of the biggest advantages of these plans is the tax benefit. Contributions to traditional 401(k) and similar plans are made with pre-tax dollars, which lowers an employee’s taxable income for the year. This can be particularly beneficial during tax season as it may reduce the amount they owe.

For Roth 401(k) plans, while employees don’t get an immediate tax break, their withdrawals in retirement are tax-free, which can be a significant advantage if they expect to be in a higher tax bracket in the future.

Key Considerations During Tax Season

Review Contribution Limits and Deadlines. Ensure that you are aware of the current contribution limits for your retirement plans. For 2025, the contribution limit for 401(k), 403(b), and similar plans has increased to $23,500¹. Make sure all contributions are made before the tax filing deadline to take full advantage of tax benefits.

Maximize Tax Credits. The SECURE Act 2.0 has introduced expanded tax credits for small businesses that establish new retirement plans. If your business qualifies, you can receive credits for up to 50% of the costs associated with setting up and administering these plans, up to a maximum of $5,000 per year for the first three years¹.

Implement Automatic Enrollment. Starting in 2025, businesses with more than 10 employees and operating for at least three years must automatically enroll eligible employees in their retirement plan¹. This can help increase participation rates and ensure that employees are saving for their future. Make sure your payroll systems are updated to handle automatic enrollment and contribution increases.

Consider Catch-Up Contributions. For employees aged 60 to 63, the catch-up contribution limit has been increased to $11,250¹. Encourage eligible employees to take advantage of this opportunity to boost their retirement savings. Additionally, remember that catch-up contributions for employees earning more than $145,000 must be treated as after-tax contributions to a Roth plan.

Plan for Required Minimum Distributions (RMDs). If you have employees who are 73 or older, they must take RMDs from their retirement accounts¹. Ensure that your plan administrators are aware of these requirements and that distributions are made on time to avoid penalties.

Communicate with Employees. Effective communication is key. Inform your employees about any changes to the retirement plan, contribution limits, and deadlines. Provide them with resources and support to help them make informed decisions about their retirement savings.

Review Plan Design and Compliance. Regularly review your retirement plan design to ensure it meets the needs of your business and complies with current regulations. This includes checking eligibility requirements, contribution formulas, and non-discrimination testing.

Seek Professional Advice. Tax laws and retirement plan regulations can be complex. Consider consulting with a financial advisor to ensure that your retirement plan strategy is optimized and compliant with all legal requirements. CoSource Financial Group offers a complimentary, no obligation benchmark review of your plan, so please reach out to us if you need an evaluation. Similarly, we offer employee education to our plan sponsors. If you’re concerned about how to communicate with your employees, let us do the work.

Tax season is an excellent time for business owners to review and optimize their employer-sponsored retirement plans. By taking these steps, you can effectively manage your retirement plan, ensuring compliance and maximizing benefits for both the business and your employees.

¹ irs.gov

Retirement plan withdrawals may be subject to taxation and penalties when withdrawn early. Neither diversification nor asset allocation assure or guarantee better performance and cannot eliminate the risk of investment losses. Investments are subject to market risks including the potential loss of principal invested. Past performance is not a guarantee of future results.

David Briley

Dave earned his accounting degree from Our Lady of Holy Cross College in New Orleans and subsequently became a CPA. Starting in public accounting with a small firm in Harvey, La., he provided accounting and tax services for diverse clients. Transitioning to the private sector, Dave assumed the role of accounting manager at his alma mater, concurrently managing his growing self-employed CPA practice. Seeking to expand his services, he delved into investment services, eventually transitioning to the wealth management field along the Gulf Coast. In 2021, Dave was invited to join the CoSource office in New Orleans, leveraging his CPA background to scout potential 401K plans for the firm. Drawing from his extensive investment experience, he offers a range of investment options to his clients, facilitated by his affiliations with advisors at Avantax Wealth Management® (formerly 1st Global and HD Vest).