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Unlock Free Government Money: Tax Incentives for Small Business Retirement Plans

June 07, 20242 min read

Barbara Schreihans • Jun 23, 2023

Did you know you might be eligible for free money from the US Government? 


Yes, you read that right—free money! 

The government offers tax incentives to encourage small businesses to start retirement plans for their employees.


These credits can help cover the costs of starting and maintaining a retirement plan. 


Here’s a breakdown of what you need to know:


Startup Tax Credit


  • If you’re a small business looking to set up a new 401(k) or defined benefit plan, you could claim up to 100% of your startup costs. 


Here’s how you qualify:


  • You have 100 or fewer employees who earned at least $5,000 in the previous year.

  • Your plan covers at least one non-highly compensated employee (non-HCE).

  • In the last three years, your employees weren’t part of another retirement plan you offered.


"Ok great, but what counts as qualified startup costs?"


These are expenses like setting up and managing a qualifying retirement plan and educating your employees about it. 


Businesses with up to 50 employees can claim a tax credit for 100% of these costs, while those with 51-100 employees can claim 50%.


You can claim up to $5,000 each year for the first three years, which can significantly offset your costs.


Employer Contribution Tax Credit


There’s also a tax credit for the contributions you make to your employees’ retirement plans. This credit is available for up to five years. 


Here’s how it works:


Businesses with 50 or fewer employees can claim 100% of contributions in the first two years, 75% in the third year, 50% in the fourth year, and 25% in the fifth year.


If your business has 51-100 employees, the credit decreases as your employee count increases, but it’s still a substantial benefit.


Auto-Enrollment Tax Credit


You can also receive a $500 credit for three years if you set up automatic enrollment in your retirement plan.


Here is why that is a win-win:


Paying for your 401(k) administration fees from your business means you can deduct these fees as business expenses. This strategy keeps more money in your retirement plan, earning interest and growing until you need it.


Long story short: For many businesses, these credits make offering retirement plans to your employees free to administer for the first few years.


"Ok, so how do I claim these credits?"

To claim these credits, you’ll need to file IRS Form 8881 with your tax return. 


But I highly recommend booking a call with us so we can make sure you're getting all the free money you’re entitled to.


Please know: 


This is just scratching the surfaces when it comes to growing your business and your wealth through strategic retirement plans!


Check out our Retirement Riches Roadmap™ course where we dive into this topic even further!

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