Proposal Request

Tax Credit Opportunities for New Qualified Retirement Plans


Welcome to the INTAC Library. Get the latest news, industry information and insight here.

Tax Credit Opportunities for New Qualified Retirement Plans


Tax credits associated with the start-up of a retirement plan are commonly overlooked
in the pension planning arena. These types of tax credits help employers offset the
upfront costs of establishing different types of retirement plans and may also help
retain and attract quality employees.

Which Start-Up Costs Are Applicable To Receive A Tax Credit?

When establishing a new qualified retirement plan, small businesses can receive a tax credit covering
eligible start-up costs relating to:

  • Plan establishment fees
  • Administration services
  • Retirement-related education for employees about the plan

The credit equals up to 50% of the expenses, not to exceed $500, in any taxable year.

What Types Of Businesses Are Eligible For This Tax Credit?

This tax credit is available to small businesses that setup:

  • Any New Qualied Pension, Prot Sharing or Stock Bonus Plan with an Exempt Trust
  • Any New SIMPLE IRA
  • Any New Simplied Employee Pension IRA (SEP)

Eligible employers qualify to claim this credit if:

  • The business has less than 100 employees with salaries of $5,000 or more in the previous year;
  • The plan covers at least one non-highly compensated employee; and
  • In the three tax years before the rst eligible year, employees weren’t substantially the same employee
    who received contributions or accrued benets in another plan sponsored by the employer, a member of a controlled group that includes the employer, or a predecessor of either.

Who Are Highly Compensated Employees?

  • Employees who own more than 5% regardless of compensation
  • Employees who earned more than $120,000* in the previous year
  • Certain employed family members (spouses, children, parents, grandchildren) of the 5% owners
    regardless of their salary

* This gure is adjusted with ination and may increase in the future.

How Do Plans Qualify As New Plans?

For the plan to be considered a new plan, the employer cannot have established or maintained a qualied retirement plan for substantially the same employees during the three years preceding the rst taxable year in which the new plan is eective. If the employer is part of a controlled group or aliated service group, then no member of this group can have established or maintained a qualied plan during that three-year taxable period.

When Can The Tax Credit Be Claimed?

The credit may be taken for qualied costs incurred during each of the three years starting with the taxable
year in which the plan became eective by ling IRS Form 8881 (Credit for Small Employer Pension Plan
Startup Costs). If the employer prefers, they could take the credit for the year preceding the year in which
the plan becomes eective and the rst two years of the plan.

Since the employer can’t deduct the startup costs and claim the credit for the same expenses, they do have
the option to not claim the allowable credit. While the qualifying expenses that are oset by this credit are
not deductible, the remaining such expenses, not oset by this credit, may be deductible if they are ordinary
and necessary business expenses.

Where Can You Get Additional Information?

This is just one of the many incentives available in the retirement planning industry. Please contact INTAC’s
knowledgeable and dedicated sta if you would like additional information on this tax credit or any other
retirement planning needs.

Source: Internal Revenue Service. (2017). Retirement Plans Startup Costs Tax Credit
Retrieved from: 

The information contained in this material is intended to provide general information on matters of interest in the area of qualied retirement plans and is distributed with the understanding that the publisher and distributor are not rendering legal, tax or other professional advice. You should not act or rely on any information in this material without rst seeking the advice of a qualied tax advisor such as an attorney or CPA.