The SECURE Act provides tax credits to offset some of the costs of establishing a new retirement plan, effective January 1, 2020. The maximum credit allowable is $5,000 per year for each of the first three years of the plan. This applies to a SEP, SIMPLE IRA, or a qualified plan (such as a 401(k) plan).
You are eligible as an employer to claim the retirement plan startup cost credit if:
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- You had 100 or fewer employees who received at least $5,000 in compensation from you for the preceding year;
- You had at least one plan participant who was a non-highly compensated employee (NHCE); and
- In the three tax years before the first year you are eligible for the credit, your employees weren’t substantially the same employees who received contributions or accrued benefits in another plan sponsored by you, a member of a controlled group that includes you, or a predecessor of either.
The credit is 50% of your eligible startup costs, up to the greater of
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- $500 or
- The lesser of:
- $250 multiplied by the number of NHCEs who are eligible to participate in the plan, or
- $5,000.
In addition, there is a tax credit available of $500 per year for a 3-year period for employers that include an auto-enrollment feature. This credit also applies to plans that are in existence that do not currently have an auto-enrollment feature and convert to auto-enrollment.
If you would like information about the investment management services that Sabino Investment Management, LLC offers for 401(k) and 403(b) plans, click here: https://sabinoim.com/401k-and-403b-plans/
We also offer a free benchmarking comparison and efficiency analysis for existing plans with assets greater than $500,000. Our contact information: https://sabinoim.com/contact-us/