Little-Used Tax Credit Can Help Small Businesses Start a Plan

Small employers who want to start a retirement plan can get help through an IRS tax credit. However, fewer than 6% of eligible firms have claimed the credit each year it’s been available, according to a study by the Georgetown University Center for Retirement Initiatives and the National Bureau of Economic Research.*

That means small businesses might be missing out on as much as $5,000 in tax credits per year. The tax credit subsidizes the costs of starting and managing an employer-sponsored retirement plan, such as a 401(k). It’s available each year for the first three plan years. Small employers may claim additional credits for employer contributions and automatic enrollment features.

The recent study points to three obstacles leading to the low pickup rate:

• Inattention to or unawareness of the credit
• Reliance on intermediaries, such as tax preparers, who may lack awareness
• Administrative burdens that keep businesses from following through

Advisors are in a good position to bring this valuable tax credit to the attention of small businesses. For more details, download our flyer or contact your representative at The Standard.