Advisers, CPAs push small firms to claim 401(k) tax credit

A working paper revised in March found that expanded federal tax credits for starting 401(k) plans lifted annual take-up among eligible small firms to about 7.2% from roughly 1.1%, but most eligible employers still do not claim the benefit. The research was produced by scholars affiliated with the Treasury Department, the FDIC, the Federal Reserve Bank of Chicago, Georgetown University and George Mason University.

The Secure Acts increased the startup credit, effectively eliminating startup costs for firms with 50 or fewer employees, halving them for businesses with 51 to 100 workers and offering credits for employer matching contributions during the first five years of a plan.

The paper reports that firms with more highly educated owners and those whose tax preparer is a certified public accountant are more likely to claim the credit. The authors also identified a tax-preparer learning effect: when a preparer files for the credit for one client, take-up rises among that preparer’s other clients. Although the credit is designed to offset startup costs for three years, most firms claim it for only one year.

Industry executives and advisers pointed to coordination problems between tax and wealth advisers and to technology gaps as reasons for low participation. Will Hackler, managing partner of Integrated Pension Services, described silos between tax and wealth advisors and software that cannot generate reports showing potential savings from startup expenses. “The process hasn’t been built for it,” Hackler said, adding that firms are forfeiting thousands of dollars in available credits.

John Pastore, executive vice president and private wealth manager at Integrated, urged advisers to raise the issue more often with business-owner clients. “Don’t be afraid to bring up the idea. The idea is like chicken soup — it’s not going to hurt anybody, but it just might help,” Pastore said, recommending a team approach between advisers and tax preparers.

The call for greater adviser engagement came after an executive order signed April 30 directing creation of a TrumpIRA.gov website and highlighting the Federal Saver’s Match included in Secure Act 2.0, which takes effect in 2027. The White House said about 41 million American workers between 18 and 65 lack access to a retirement plan through their employer. The order states it is U.S. policy to promote high-quality, low-cost individual retirement accounts and to increase public awareness of the Saver’s Match.

Trade groups and a bipartisan policy group responded to the order. The Economic Innovation Group said workers in the lowest 10% of the income distribution are especially unlikely to have a workplace plan and urged Congress to pass the Retirement Savings for Americans Act to expand access to 401(k) accounts and add features such as automatic enrollment and broader matching benefits. Jeffrey Levine, chief planning officer at Focus Partners Wealth, wrote on LinkedIn that the order contains few technical changes but that publicity around a government website could raise awareness of existing saving options.

Integrated Partners is among firms promoting closer collaboration between CPAs and financial advisers. Its Integrated CPA Alliance helps accounting firms develop wealth management businesses and facilitates referrals between tax professionals and advisers. The academic paper and industry participants identified adviser education and improved workflows between tax preparers and wealth managers as factors that could increase claims of the startup credit.