Key Takeaways
- The SECURE Act 2.0 provides significant tax credits for startup plan costs—for both administration and contribution costs.
- The credits are fully available for employers with 50 or fewer employees and partially available up to 100 employees.
- This provision is effective now, that is, it is effective for tax years beginning after December 31, 2022 (in 2023 for calendar year taxpayers).
The President signed the Consolidated Appropriations Act, which included SECURE Act 2.0, on December 29, 2022.
SECURE Act 2.0 has over 90 provisions, some major and some minor; some mandatory and some optional; some retroactively effective and some that won’t be effective for years to come. One difference between the SECURE Act 2.0 and previous retirement plan laws is that many of 2.0’s provisions are optional…that is, plan sponsors are not required to adopt the provisions, but can if they decide that the change will help their plans and participants. This series discusses the provisions that are likely to be the most impactful, either as options or as required changes.
This article and the next one discusses the “optional” provisions that provide significant tax credits for startup plans for small employers. The Senate Finance Committee’s summary of the provision explains:
Section 102, Modification of credit for small employer pension plan startup costs. The 3-year small business startup credit is currently 50 percent of administrative costs, up to an annual cap of $5,000. Section 102 [of the Act] makes changes to the credit by increasing the startup credit from 50 percent to 100 percent for employers with up to 50 employees. Except in the case of defined benefit plans, an additional credit is provided. The amount of the additional credit generally will be a percentage of the amount contributed by the employer on behalf of employees, up to a per-employee cap of $1,000. This full additional credit is limited to employers with 50 or fewer employees and phased out for employers with between 51 and 100 employees. The applicable percentage is 100 percent in the first and second years, 75 percent in the third year, 50 percent in the fourth year, 25 percent in the fifth year – and no credit for tax years thereafter. Section 102 is effective for taxable years beginning after December 31, 2022.
My last post (SECURE Act 2.0 #6 (Part 1)) covered the expanded tax credit for start-up costs; this one covers the tax credit for employer contributions.
