Maximizing Retirement Contributions for Small Employers: A Guide to the 10% Bonus

Small business owners often face unique challenges when it comes to offering competitive retirement benefits. However, there’s a little-known rule that can help employers with less than 25 employees boost their retirement savings. This rule allows employees to contribute an additional 10% to the maximums for the year in either a Simple IRA Plan or a 401K.

Before diving into the details, it’s essential for employers to ensure their payroll program can be adjusted for the higher limit. This adjustment is crucial to avoid any disruptions in contributions at the standard amount.

Here’s how the 10% bonus works:

1. Eligibility: Employers with less than 25 employees are eligible for the 10% bonus.
2. Employee Notification: Employers must notify their employees of this option and provide them with a Payroll Contribution form if they wish to contribute more. This form should be submitted to the payroll provider.
3. Contribution Limits: The 10% bonus increases the contribution limits for both 401K and Simple IRA Plans. For the year 2024, the standard 401K contribution limit is $23,000. With the 10% bonus, this limit increases to $25,300. Similarly, the standard over-50 catch-up limit is $7,500, which increases to $8,250 with the 10% bonus.
4. Total Contribution: When combining both the standard and the 10% bonus, the total contribution for 2024 would be $30,500 for the 401K and $33,550 for the over-50 catch-up limit.

It’s important to note that this rule is particularly beneficial for employers who are close to the 25-employee threshold. However, employers should carefully consider their hiring plans for the year before opting for this bonus, as hiring additional employees could affect eligibility.

In conclusion, the 10% bonus offers a valuable opportunity for small employers to enhance their retirement savings plans. By understanding the rules and ensuring proper adjustments to payroll systems, employers can provide their employees with a more robust retirement benefit.

If you would like to understand more about this rule and how it can benefit your business, please contact Pivotal Forensic Accounting & Audits. We can put you in touch with a financial advisor who can provide personalized guidance based on your specific situation.