401(k) plans are great for attracting and retaining talent, boosting morale and employee satisfaction, reducing a company’s income and payroll taxes, but tax credits for new start-up 401(k) plans can be added to the many reasons to start a new 401k plan for you company or if eligible join the UAPCS 401(k) plan.
Here is how it works.
The UAPCS 401(k) plan is a MEP (Multiple employer plan) First off, what’s an MEP? Imagine a friendly alliance of companies—kind of like the Avengers, but for retirement savings. MEPs allow multiple employers (big and small) to band together and offer retirement plans to their employees. It’s like a financial potluck: everyone brings their contributions, and the whole group benefits.
Now, about those tax credits:
- Startup Tax Credit for new 401k plans or joining a MEPs:
- The good news is that if a company joins an MEP, they can indeed be eligible for a tax credit.
- This credit helps cover the ordinary and necessary costs of setting up a retirement plan within the MEP.
- How much? Well, it’s like a little financial high-five: up to $5,000 over three years. That’s right, Uncle Sam gives you a nod for doing the right thing.
- Remember, a tax credit is like a magical eraser—it reduces the amount of taxes you owe dollar-for-dollar. So, it’s not just a pat on the back; it’s real savings.
- To claim this credit, you’ll fill out Form 8881—it’s like the secret handshake to unlock your tax benefits.
- Who Qualifies?:
- If you’re an eligible employer, you’re in the running. Here’s the eligibility checklist:
- 100 or fewer employees who received at least $5,000 in compensation from you last year.
- At least one plan participant who’s a non-highly compensated employee (NHCE).
- If you’re an eligible employer, you’re in the running. Here’s the eligibility checklist:
And here’s the twist: In the three years before your eligibility, your employees shouldn’t have been the same ones benefiting from another plan you sponsored. No double-dipping allowed!
- How Much Credit?:
- If you have 50 or fewer employees who received at least $5,000, the credit is a whopping 100% of eligible startup costs (up to $500 or the lesser of $250 multiplied by the number of NHCEs).
- If you’ve got 51 to 100 employees, it’s still a solid deal: 50% of eligible startup costs.
- And remember, this credit dances with you for three years, so it’s not a one-hit wonder.
- What Counts as Eligible Startup Costs?:
- Setting up and administering the plan—think of it as the party planning committee for your retirement bash.
So, there you have it! Joining the UAPCS 401(k) plan MEP can be a smart move for your company’s retirement game, and the tax credit adds a little extra incentive.
Contact Able and Strong Advisors, Inc. 385-212-4560 [email protected]
to find out more information about the UAPCS plan or a plan that will work for your company.
*Content created using AI generated information, irs.gov and Investopedia.com