Retirement plan tax credit

First Time/New Retirement Plan Tax Credit in 2022, Get a Tax Credit of up to $5,000 for 50% of your Plans Cost

(The short as I could make it version)

If the government will help cover some of your plan costs, you might consider opening a new, first-time retirement plan.
Suppose you are a New Jersey Business owner. In that case, this credit could influence your 2022 decision as most New Jersey Business owners are required to start a retirement plan or enroll their employees in the New Jersey Secure Choice Savings Program. See my article “NJ’s new Retirement Plan or NJ Program Requirement,” scroll down my blog page and come back.
This cost reduction could make having a plan more affordable. Having your own plan vs. a State plan, will allow you to control the plan, to an extent, which will best enable you to retain your employees and help them invest for retirement.
The tax credit will apply for the ordinary and necessary costs of starting a SEP, SIMPLE IRA, or qualified plan (like a 401(k) plan.) Eligible costs are set up & administration and to educate employees about the plan. The tax credit reduces the amount of taxes you may owe at the end of the year.

Eligible Employers
1. Your company has less than 101 employees who individually earned at least $5,000 in compensation from you last year.
2. The company had at least one employee that earned less than $130,000. (highly compensated individual)
3. In the last three years, your employees weren’t in another plan run by you or your control group. (basically, your company didn’t have a plan in the past three years, or less if you’re a new company).

So the tax credit calculation is the greater of:
● $500 or
● The lesser of $250 per employee (excluding highly compensated employees) or $5,000.
AND: Limited to 50% of the plan’s costs!

There is an additional $500 credit if you add “Auto-Enrollment” to the plan.
Your company has 30 employees, and the plan costs are $3,500.
Number of employees 30 X $250= $7,500; the max is $5,000.
And auto-enroll is an additional credit of $500.
The plan cost is $3,500 X 50%= $1,750.
On your tax return you will get of credit of $2,250 ($1,750 + $500).
Net Employer plan cost 3,500-2,250 = $1,250.
This will reoccur for a three year time period, grand total saved $6,750 (2,250X3)
Thus, the tax credit could very well influence your decision to start a new retirement plan for your company. In addition, everyone, including you, the owner, will save on your federal and state taxes based upon your contribution to the plan.

The extra-long IRS version is here:
Retirement Plans Startup Costs Tax Credit | Internal Revenue Service (

Thank You & Congratulations

Glad to see you took action on behalf of your finances !!!

We will add you to our subscription list and provide you with strategic & educational financial content.

If you have any questions please feel free to contact us.

Ken Gibbons, CPA & CPFA