Texas isn’t one of the many states now requiring small businesses to provide access to retirement perks, but it may not be a bad idea to add such a benefit to your competitive employment package.
Most states now have some sort of mandatory requirement, either enacted or in the works, for small businesses to provide access to retirement plans for their employees (some laws affect businesses with as few as one employee). Texas legislators have even broached the subject, although a mandate in the Lone Star State hasn’t yet happened.
But just because you may not be mandated to provide retirement perks doesn’t mean it wouldn’t be beneficial from a recruitment and retention standpoint and as a means for tax savings.
Retirement Programs Can Attract Employees
Recruitment firm Robert Half reports that retirement savings accounts are the third most desired employee benefit in 2025 (behind health insurance and paid time off). With retirement now potentially lasting 30 years or more, workers of all ages are learning that employer-sponsored retirement plans will help them build the savings needed to maintain their lifestyle after leaving the workforce.
By 2023, only 34% of small businesses nationwide offered retirement benefits. With new mandates in place, that number is undoubtedly growing. For Texas small businesses competing on a national level, it could be a matter of keeping up with the perks provided by others. For those competing for Texas talent alone, it could be a valuable differentiator.
How Retirement Programs Are Tax-Advantaged
Another reason retirement programs can be beneficial for small businesses: tax savings. As the IRS outlines in its downloadable Choosing a Retirement Solution for Your Small Business, tax advantages can include (depending on the type of plan):
- Employer contributions that are deductible from the employer’s income.
- Employee contributions (other than Roth contributions) that are not taxed until distributed to the employee.
- Tax-free investment growth.
- Distributions eligible for tax-favored rollovers or transfers into other retirement programs.
The Secure 2.0 Act sweetened the pot in 2023 by allowing for additional tax advantages. These include enhanced catch-up contributions beginning in 2025, emergency withdrawal allowances, and matching contribution enhancements.
If you’re a small business with 100 or fewer employees just starting a retirement plan, you could be eligible for a significant tax credit of up to $5,000 for three years. For businesses with 50 or fewer employees, the credit could be 100% of your eligible start costs. The IRS outlines the details of this credit here.
What to Consider When Choosing a Retirement Program
First, understand the retirement plan mandates and the tax laws of the jurisdictions in which you operate. And heads up: these rules are constantly changing. Use this information to inform your decisions on whether to provide retirement benefits and what type of benefits to choose.
Small businesses in Texas have several different retirement plans to choose from depending on organization size, structure, tax interests, and other factors. The most common retirement plans for small businesses include:
- Traditional IRAs, Roth IRAs, and 401(k)s: These plans each offer varying tax advantages and flexibility, with 401(k)s allowing higher contribution limits and potential employer matching.
- SIMPLE 401(k)s and SIMPLE IRAs: Designed for businesses with 100 or fewer employees, these plans offer simpler administration and mandatory employer contributions, making them attractive for small businesses.
- SEP IRAs: Simplified Employee Pension IRAs allow employers to make tax-deductible contributions to their employees’ retirement accounts, with easy setup and no annual filing requirements.
- Solo 401(k)s: Ideal for owner-only businesses or those with no employees other than a spouse, offering high contribution limits and flexible annual contributions.
- Employee Stock Ownership Plans (ESOPs): While less common, ESOPs can be an option for small businesses looking to provide employees with ownership interest through stock allocation.
Retirement plans are a great mix of employment perks plus tax advantages for employees and business owners alike. Overlooking this valuable addition to your offerings could literally cost you. Feel free to contact us with questions.