How to Leverage the Secure Act 1.0 and Section 401(b)(2) for 2022 Income Tax Savings

There is still time to realize income tax savings by setting up an Employee Stock Ownership Plan with the Secure Act 1.0 and Section 401(b)(2) for 2022 Income Tax Filing.

What the Legislation Says

I.R.C. § 401(b)(2) Adoption Of Plan — If an employer adopts a stock bonus, pension, profit-sharing, or annuity plan after the close of a taxable year but before the time prescribed by law for filing the return of the employer for the taxable year (including extensions thereof), the employer may elect to treat the plan as having been adopted as of the last day of the taxable year.

Why this Matters for Business Owners

Companies interested in selling to an ESOP would be able to make a contribution in advance of their 2022 income tax filing plus extension under either of these following conditions:

  • An ESOP was adopted and closed via a stock sale prior to said extension filing

  • The ESOP Plan and Trust are established prior to that contribution and extension filing

Our clients who have leveraged this strategy have saved a tremendous amount of income tax. In most cases, this is tax that has already been paid by the company or shareholders through estimated tax payments.

When Businesses Need to Act

  • Whether a company is an S Corp or C Corp, their respective tax filing extension deadlines are September 15th and October 15th.

  • In general, ESOP transactions can take approximately 4 months, so companies can begin the process by mid-May and still make the 2022 extension deadlines.

Let’s Discuss

As always, our team is available to help illuminate how these insights might benefit your succession planning efforts. If you or one of your clients are interested in pursuing this opportunity, please contact us at to schedule a discussion as soon as possible.

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