Unleash Your 401(K) Potential: Claiming The Investment Credit Advantage

If you contribute to a company-sponsored retirement plan, you could claim a Saver's Credit. You can apply for the credit using Form 8880, Credit for Qualified Retirement Savings Contributions, or when using most electronic tax-filing services.

Eligible employers can claim up to 100% of qualified startup costs for a new 401(k) plan

If you are an eligible employer, you can claim up to 100% of qualified startup costs for a new 401(k) plan. To be eligible, you must have 100 or fewer employees who were paid at least $5,000 in compensation by you in the preceding year. You must also cover at least one non-highly compensated employee (NHCE) with your retirement plan. In the three tax years before you became eligible for the credit, your employees weren’t enrolled in another plan sponsored by you, a member of a controlled group that includes you, or a predecessor of either.

Qualified startup costs include the ordinary and necessary expenses incurred by a small business to:

• Establish or administer a qualifying retirement plan
• Educate employees about the plan

To claim the startup tax credit, you must file IRS Form 8881 (Credit for Small Employer Pension Plan Startup Costs) with your tax return.

You can claim the startup tax credit for the first three years of your company’s plan. Note, you’re able to begin claiming the credit the year before the tax year in which your plan becomes effective.

Saver's Credit is available for company-sponsored retirement plans

If you contribute to a company-sponsored retirement plan, you could claim a "Saver's Credit".

To be eligible for the Savers Credit, you must have been born before January 2, 1993, cannot have been a full-time student during the calendar year, and cannot be claimed as a dependent on another person’s return.

You can apply for the credit using Form 8880, Credit for Qualified Retirement Savings Contributions, or when using most electronic tax-filing services. For more information, visit the IRS website or contact your tax professional.

If your business qualifies for the startup costs tax credit, you can claim a credit for your 401(k) startup costs for up to three years after establishing the plan, so long as you continue to qualify. This credit equals a percentage of your qualified startup costs, including what the IRS calls "the ordinary and necessary costs" to set up and administer your plan. These costs can include record-keeping fees, payroll deduction software, printing costs for enrollment materials, and money spent educating your employees. You can claim the startup tax credit for the first three years of your company’s plan. Note, you’re able to begin claiming the credit the year before the tax year in which your plan becomes effective.

There are now three distinct tax credits for plan fees or contributions paid by small businesses. To estimate the amount, use our online calculator. Created in SECURE and enhanced in SECURE 2.0, an eligible employer may claim up to 100% of its qualified startup costs for adopting and maintaining a new 401(k) plan. Have 100 or fewer employees who were paid at least $5,000 in compensation by you in the preceding year; Cover at least one non-HCE with your retirement plan; and in the 3 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 retirement plan sponsored by you, a member of a controlled group that includes you, or a predecessor of either.

Business startup costs can be claimed for up to three years after establishing the plan

If you are eligible for the Saver's Credit for 401(k) plan contributions, you can claim a credit for your 401(k) startup costs for up to three years after establishing the plan, so long as you continue to qualify. This credit equals a percentage of your qualified startup costs, including what the IRS calls "the ordinary and necessary costs" to set up and administer your plan. These costs can include record-keeping fees, payroll deduction software, printing costs for enrollment materials, and money spent educating your employees. You can claim the startup tax credit for the first three years of your company’s plan. Note, you’re able to begin claiming the credit the year before the tax year in which your plan becomes effective.

To be eligible for the Saver's Credit you must have been born before January 2, 1993, cannot have been a full-time student during the calendar year, and cannot be claimed as a dependent on another person’s return. You can apply for the credit using Form 8880, Credit for Qualified Retirement Savings Contributions, or when using most electronic tax-filing services. For more information, visit the IRS website or contact your tax professional.

To estimate the amount of the tax credit, use an online calculator. Created in SECURE and enhanced in SECURE 2.0, an eligible employer may claim up to 100% of its qualified startup costs for adopting and maintaining a new 401(k) plan.

Have 100 or fewer employees who were paid at least $5,000 in compensation by you in the preceding year; Cover at least one non-HCE with your retirement plan; and In the 3 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 retirement plan sponsored by you, a member of a controlled group that includes you, or a predecessor of either.

The maximum credit amount is up to $1,000 per participating employee per year for five years. This credit is in addition to any other retirement plan tax credits that the business may be eligible for. The requirements for claiming this tax credit are as follows: You had less than 100 employees who received at least $5,000 in compensation from you for the preceding year. You had at least one participating employee who was a non-highly compensated employee (NHCE). In the three tax years before you became eligible for the credit, your employees weren’t enrolled in another plan sponsored by you, a member of a controlled group that includes you, or a predecessor of either.

Maximum credit amount is $1,000 per participating employee per year for five years

If you are an employer and you contribute to a company-sponsored retirement plan, you could claim a tax credit called the Saver's Credit. The maximum credit amount is $1,000 per participating employee per year for five years. This credit is in addition to any other retirement plan tax credits that the business may be eligible for.

To be eligible for the Saver's Credit, you must have less than 100 employees who received at least $5,000 in compensation from you for the preceding year. You must also have at least one participating employee who was a non-highly compensated employee (NHCE). In the three tax years before you became eligible for the credit, your employees weren’t enrolled in another plan sponsored by you, a member of a controlled group that includes you, or a predecessor of either.

You can apply for the credit using Form 8880, Credit for Qualified Retirement Savings Contributions, or when using most electronic tax-filing services. For more information, visit the IRS website or contact your tax professional.

Eligible businesses must have less than 100 employees and at least one non-highly compensated employee

To be eligible for the Saver's Credit, you must have been born before January 2, 1993, cannot have been a full-time student during the calendar year, and cannot be claimed as a dependent on another person’s return. You can apply for the credit using Form 8880, Credit for Qualified Retirement Savings Contributions, or when using most electronic tax-filing services.

If your business qualifies for the startup costs tax credit, you can claim a credit for your 401(k) startup costs for up to three years after establishing the plan, so long as you continue to qualify. This credit equals a percentage of your qualified startup costs, including what the IRS calls "the ordinary and necessary costs" to set up and administer your plan.

To estimate the amount, use an online calculator. Created in SECURE and enhanced in SECURE 2.0, an eligible employer may claim up to 100% of its qualified startup costs for adopting and maintaining a new 401(k) plan.

The maximum credit amount is up to $1,000 per participating employee per year for five years. This credit is in addition to any other retirement plan tax credits that the business may be eligible for.

Frequently asked questions