Startup costs have always been a major hurdle to small businesses who want to start a 401(k) plan. However, the Economic Growth and Tax Relief and Reconciliation Act (EGTRRA), enacted in 2001, implemented a credit for employers to offset startup costs as well as the cost of educating employees about the new plan.
Small business owners who start a retirement plan after December 31, 2001 may be able to claim a tax credit for part of the ordinary and necessary costs of starting the 401(k) plan. The credit equals 50% of the costs to set up and administer the plan, as well as any costs associated with educating employees about the plan, up to a maximum of $500 per year for each of the first three years the plan is in place. Employers must have had 100 or few employees who received at least $5,000 in compensation from the preceding year in order to be eligible for the credit.
More information on the credit is available through this article from 401khelpcenter.com. Companies may also want to consult with their CPA or tax attorney.
If you are interested in learning about how NADART can meet the retirement needs of your small business at an affordable cost, please contact a NADART Representative at (800) 462-3278 ext. 7161 or e-mail nadart401k@nada.org.