New Tax Credits for Starting a Practice Retirement Plan

Four new tax credits for offering a 401(k) plan in your practice

Like most small businesses, your practice struggles to attract and retain quality team members. One way to help cut down on turnover is by offering a 401(k) retirement plan. With the growth of online retirement plan services like Betterment and Guideline and the new Secure Act 2.0 tax credits, you can offer a 401(k) plan for essentially free.

Your practice will qualify for the Secure 2.0 credits if:

  • In the prior year, you had 50 or fewer employees, who earned at least $5,000

  • The plan will cover at least one Non-Highly Compensated Employee (NHCE) - any non-owner making less than $135,000/year

  • The practice has not had another plan in the three tax years prior to establishing a new plan

The Credits

Startup Tax Credit

The credit is equal to 100% of all the plan set-up and administrative costs, including costs associated with staff education about the plan. The credit covers up to a maximum of $250 per NHCE-eligible participant up to $5,000 in total per year. This credit is available for the first three years of the plan.

Employer Contribution Cost Credit

This credit is available for the cost of employer contributions to the plan up to $1,000 per employee (if they make less than $100,000) for up to four years after establishing the 401(k).

Automatic Enrollment Credit

By adding an automatic enrollment feature to your 401(k) plan, your practice can claim a tax credit of $500 per year for a three-year taxable period, beginning with the year that the auto-enrollment feature is added. Please note that this credit is available to existing 401(k) plans and there is no requirement that the plan cover at least one NHCE. 

Military Spouse Credit

If your practice employs a NHCE who is a military spouse, you may receive a credit of up to $500 for each spouse that participates in the plan. This credit is subject to several requirements (e.g., the spouse must be eligible no later than two months after starting employment and if there are employer contributions, additional rules apply).

If you already have a 401(k) plan, you should look into the benefits of adding an auto enrollment feature and if you don’t have one, you should be consulting with your advisor to review how the credits can benefit you and your practice.

Jeff Gullickson