Up to $16,500 in Tax Credits for Small Business Retirement Plans

Passed in 2020, SECURE Act has been one of the most comprehensive updates to retirement plans in more than a decade, and one of the major benefits is the Small Business Tax Credits component of the act.

Companies with up to 100 employees can claim a tax credit to offset startup costs associated with establishing a new 401(k) plan.  Companies can get a tax credit of up to $5,000 per year for the first three years, with a maximum total credit of up to $15,000.  Startup costs include:

  • Annual and setup fees for Third-Party Administrator services
  • Annual and setup fees for ERISA Fiduciary services
  • Annual and setup fees for Recordkeeping services

Furthermore, there is also a $500 tax credit available for plans that add an automatic enrollment feature to a new or existing retirement plan for participants.  This credit is also available for the first three years the feature is effective, with a maximum total credit of up to $1,500.  This means that the total maximum eligible tax credit for establishing a 401(k) plan is $16,500 for the three years.

To learn more details about the IRS tax credits, click here.