Plan Start-Up Tax Credit | Form 8881 DOES NOT Apply to: Solo 401k | Individual 401k | Solo K

Common misconception exists regarding the plan start-up credit which is only available to small employers. A small employer is defined as an employer that had 100 or fewer employees and who each received at least $5,000 of compensation from the employer for the preceding year. Therefore, since a Solo 401k | Individual 401k plan is for the self employed with no employees, it cannot claim the credit.

The rest of this blog posting explains the plan start-up credit but remember that it doesn’t apply to Solo 401k or Individual 401k.

Resulting from the passage of the Economic Growth and Tax Relief Reconciliation Act of 2001, a qualified employer may take the tax credit for establishing a new qualified retirement plan.

Qualified start-up costs

Include any ordinary or necessary expenses incurred in connection with:

  • establishment of plan;
  • administration; or
  • educating employees about the plan

Determining the Credit and Form 8881

  • The credit equals 50% of start-up costs detailed above up to $500 per year for maximum of plan’s first 3 years.
  • Employer has option of applying 1st year credit to year of plan establishment or to year before.
  • To claim credit, qualified employer completes and attaches Form 8881, Credit for Small Employer Pension Plan Startup Costs, to its business tax return.
  • The credit is permitted as part of employer’s general business credit.
  • Employer may not claim a deduction for the start-up costs in addition to claiming the credit.
  • However, employer has option to elect not to claim the start-up credit at all.

About Mark Nolan

Each day I speak with energetic entrepreneurs looking to take the plunge into a new venture and small business owners eager to take control of their retirement savings. I am passionate about helping others find their financial independence. Having worked for over 20 years with some of the top retirement account custodian and insurance companies I have a deep and extensive knowledge of the complexities of self-directed 401ks and IRAs as well as retirement plan regulations. Learn more about Mark Nolan and My Solo 401k Financial >>

  •  

  • Popular Video

  • ROBS 401k Funding Process

  • Solo 401k Contributions Including Mega

  • Checkbook IRA LLC

  • About MySolo401k

    We help our clients take control of their retirement money. Our products and services provide our clients the freedom to invest their retirement savings in their own business as well as alternative investments such as real estate, private companies, promissory notes, precious metals, tax liens and equities.
    Learn more

    Connect with us

  • We’re here to help.

    Call: 800-489-7571

    Monday-Friday

    8:00 am - 4:00 pm PT

    Why us?
MENU