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As a small business owner or medical practice owner, setting up a retirement plan doesn’t just help you and your team save for the future — it can also offer immediate tax savings and tax credits for you and your business…NOW.

A retirement plan (such as a SEP, SIMPLE IRA, or 401(k)) can cover both the owner and eligible staff. Eligibility is typically based on:

• Number of hours worked (e.g., at least 1,000 hours per year),

• Years of service (often 2 or more), and

• Age requirement (commonly age 21).

These parameters can vary depending on the plan type, but they ensure fairness and help you reward loyal, long-term employees.

💸 Tax Credit for Retirement Plan Startup Costs

Here’s the amazing bit of news: you may qualify for a valuable tax credit and that’s in addition to the deductions generated by the contribution matching and administrative costs for setting up your plan. This is called the Retirement Plans Startup Costs Tax Credit, and it can help offset the expenses of creating and running your retirement plan.

Sounds good,?  Tere is the 🔗 link to the IRS landing page; or just read on:

From the IRS landing page:

Eligible employers may be able to claim a tax credit of up to $5,000 for three years for the ordinary and necessary costs of starting a SEP, SIMPLE IRA, or qualified plan (like a 401(k) plan).
A tax credit reduces the amount of taxes you may owe on a dollar-for-dollar basis.

If you qualify, you may claim the credit when you file your business tax returns.

✅ Eligible Employers

You qualify to claim this credit if:

• You had 100 or fewer employees who received at least $5,000 in compensation from you for the preceding year;

• You had at least one plan participant who was a non-highly compensated employee (NHCE); and

• In the three tax years before the first year you’re eligible for the credit, your employees weren’t substantially the same employees who received contributions or accrued benefits in another plan sponsored by you, a controlled group member, or a predecessor of either.

💵 Amount of the Credit

If you have 50 or fewer employees who received at least $5,000:

• Credit = 100% of eligible startup costs, up to the greater of:

  • $500, or

  • The lesser of:

    • $250 × the number of NHCEs eligible to participate in the plan, or

    • $5,000

If you have 51–100 employees who received at least $5,000:

• • Credit = 50% of eligible startup costs, up to the greater of:

    • $500, or

    • The lesser of:

      • $250 × the number of NHCEs eligible to participate in the plan, or

      • $5,000

🧾 Eligible Startup Costs Include the ORDINARY and NECESSARY cost of:

• Setting up and administering the plan and

• Educating your employees about the plan

💰 Tax Credit for Employer Contributions

Small employers may also claim a tax credit for contributions made to a defined contribution plan, SEP, or SIMPLE IRA (but not for employees earning more than $100,000 in 2023).

For employers with 1–50 employees, the credit available per participant is:

• Year 1: 100% of contribution, up to $1,000

• Year 2: 100% of contribution, up to $1,000

• Year 3: 75% of contribution, up to $1,000

• Year 4: 50% of contribution, up to $1,000

• Year 5: 25% of contribution, up to $1,000

For employers with 51–100 employees, reduce the percentages above by 2% for each employee exceeding 50.

🚫 No Double Dipping

You can’t deduct the startup costs AND claim the tax credit for the same expenses. You may, however, choose not to claim the credit if it’s more beneficial to deduct.

⚙️ Extra Credit: Auto-Enrollment Feature

If you add an auto-enrollment feature to your plan, you can claim an additional $500 per year for three years starting when the feature is first implemented. This applies to both new and existing plans.

Final Thoughts ✨

Setting up a retirement plan is one of those “win-win” business moves — it helps you attract and retain talent, save for your own future, and reduce your current tax bill.

📌Let the planning begin: So yes, please keep the conversations going until we’re confident we’ve landed on the best possible answers and strategies to help your medical practice or small business follow a roadmap for your future, your staff and include tax minimization planning.

🚀Seems like this is another call to action, no wishful thinking, let’s not say “I wish I had…”,  and as always

 Feel free to search our website for some of our complementary resources or get in touch:  Contact us if you have tax concerns, tax minimization questions or want to discuss the next steps for your business success and financial goals.  Use our search box 🔎for those posts specific to tax minimization, business planning, business best practices, casualty losses, etc. and see what “pop’s” up. Here’s a link to other blog posts.