AARP Renews Call for Tax Credit to Help Retirement Savers

Employees at small businesses spend their careers delivering vital goods and services, collectively generating trillions of dollars in economic activity. Yet many go without employer-sponsored retirement plans, as setup costs for 401(k)s and similar plans are often too high for smaller companies. 

As a result, older adults who work for small businesses may lag in retirement savings compared to their private-sector counterparts. 

More workers age 50-plus were employed at private small businesses than at larger firms in 2022, according to research from AARP’s Public Policy Institute. The share of small business employees age 65-plus has grown by 50 percent since 2019, according to a recent analysis by Gusto’s Insights Group.  

That’s why AARP is urging Congress to pass legislation that would boost a federal tax credit to help more small businesses offset the costs of offering a retirement savings plan to their workers.

The AARP-backed Retirement Investment in Small Employers (RISE) Act, reintroduced in the Senate in May, would give businesses with up to 10 employees a minimum $2,500 credit (up from $500) on their federal taxes to cover start-up and administration costs associated with setting up a workplace retirement plan like a 401(k).

Other tax credits exist for small businesses that offer savings accounts, but this law would raise the threshold to ensure the credits are large enough to actually cover setup costs for a small business.  

The House has yet to introduce a companion bill.

Americans are 15 times more likely to save if they can do so through their paychecks, according to AARP research. But more than half of all people working in the private sector are unable to save through work. 

For very small businesses (those with fewer than 10 employees), the number is even higher. Nearly 8 in 10 workers at these businesses lack access to a workplace-sponsored plan, AARP told federal lawmakers in an endorsement letter last May.

The bill “will help millions of people who work at small businesses put money away for retirement and build their nest egg, while helping these small companies recruit and retain their employees,” wrote Bill Sweeney, AARP senior vice president for government affairs.

Under a 2022 law supported by AARP, small businesses can get a federal tax credit of $250 per eligible employee. 

But for those with just a few workers, that credit may be too small to recoup the administrative costs of adding a 401(k) plan to their benefits package, said Clark Flynt-Barr, an AARP government affairs director who handles retirement security issues. Increasing the credit to a flat $2,500 would provide a better incentive, she said.

This is the latest of several measures AARP has endorsed to address the nation’s retirement savings crisis, including a bill that would create a federal retirement savings plan for people who lack access to one through their jobs. That bill was reintroduced in April. 

AARP also fought to protect a federal rule that requires financial advisers to put the interests of retirement savers ahead of their own.

Read our letters to House and Senate lawmakers and learn more about planning for retirement.