The Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) includes increased tax credits for qualified costs incurred in the setup and administration of an eligible retirement plan.
Eligible employers may be able to qualify for a tax credit up to $5,000 for each of the first three years of the plan. (This tax credit was previously limited to $500.)
Eligible plans include qualified employer plans: 401(k) Plans, 403(b) Plans, Profit Sharing Plans, Cash Balance Plans, SIMPLE IRAs, and SEP IRAs.
Employer plans should have:
- 100 or fewer employees who received at least $5,000 in compensation in the prior year
- At least one participant who is a Non-Highly Compensated employee
In the previous three tax years, the employer is required to not have substantially the same employees as those who participated in another plan sponsored by the employer, a member of a controlled group, or a predecessor.
Amount of the tax credit:
- For taxable years that begin after December 31, 2019, a tax credit is allowed for up to 50% of the eligible expenses incurred to establish or administer an eligible retirement plan, and retirement-related education of employees.
- The minimum credit is $500 per year, and the maximum credit is $250 for each Non-Highly Compensated Employee who is eligible to participate in the Plan, with a maximum credit of $5,000 per year.
How to claim the credit:
- IRS Form 8881 should be filed along with the employer’s tax return. (The current version of the form will need to be amended by the IRS to allow for the increased tax credit amounts.)
There are also new credits available for all plans. Both existing and new plans qualify for a $500 credit per year for three years for adding an automatic enrollment feature.
Should you have any questions regarding the Secure Act eligibility requirements or applicability, please contact a K·Coe advisor.