Start-up plan tax credits are available that offset the majority of the Administrative Expense in the first few years of a new 401(k) or 403(b) plan making them very affordable for small businesses. There are 2 types of credits being offered:

1. The SECURE ACT 2.0 created a new tax credit based on contributions the employer makes on behalf of participants. 
2. The SECURE ACT 2.0 expanded the existing tax credit on employer plan costs.

Requirements to Qualify:

• No more than 100 employees who received compensation of $5,000 or more in the preceding calendar year.
• The employer did not sponsor a retirement plan for a significant portion of the same employees in the prior three tax years.

1. The New Employer Contribution Tax Credit:

• Over the plan’s first five years, employers can receive a gradually decreasing tax credit of up to $1,000 per employee earning $100,000 or less annually, based on their contributions.
• The contribution tax credit is available for defined contribution plans like 401(k), SEP, and SIMPLE, as long as the employer has 100 or fewer employees.
• For businesses with 50 or fewer employees, the credit starts at a higher rate and gradually decreases over five years based on the schedule below.

• Larger plans with 51–100 employees follow the same phase-down schedule, but the credit is reduced by 2% for each employee beyond 50.

2. The Existing Plan Cost Tax Credit:

This credit covers a percentage of the employer’s cost to set up and administer the plan up to an annual limit.

• If 50 or fewer employees – Credit covers 100% 
• If 51-100 employees – Credit covers 50%

The annual limit is $500 or, if greater, $250 multiplied by the number of plan-eligible non-highly compensated employees (NHCEs), up to $5,000.