Stories from the vault:

“David, I’m Brenda. I’m starting a small law firm–ten lawyers and the usual clerks and secretaries. My accountant told me you’re the man to speak with when it comes to setting up our retirement benefits.”

“I’m glad you called, and here’s how this pays for itself right away: A lot of people don’t know this but when starting a new retirement plan, you’re entitled to some nice tax credits. If you have 100 or fewer employees, and have at least one non-highly compensated employee (NHCE)—generally an employee making less than $135K, indexed for inflation—you can receive a tax credit of up to 50% of your eligible plan start-up cost. That’s either the greater of $500 or the lesser of $250 multiplied by the number of NHCEs or $5,000.

“Sounds amazing. What costs are eligible?” asked Brenda.

“Essentially, there’s a cost involved with setting up and administering a plan, and then there’s a cost to educate your employees about that plan.”

“Okay, so how does it work?”

“Let’s use your situation as an example. You’re starting a law firm with 10 employees, and you want a retirement plan. Let’s just say the cost to open the plan is $5,000, and your cost over the next 2 years is $3,000 per year. The tax credit is available for each of the first 3 years of the plan, so based on allowable tax credits, the IRS will reimburse you 50% each year. Essentially the IRS will subsidize half your cost for the first 3 years so you can shelter taxes from them. Sounds like a good deal, right?”

“So let me get this straight,” said Brenda. “If the cost is $5K to open the plan and $3K for each of the next 2 years, I’ll get tax credits for $2500, $1500, and $1500.”

“Exactly. Does that sound good to you?”


Too many businesses leave thousands of dollars on the table because they don’t get sound advice when they first start up a new retirement plan. Challenge a Professional Retirement Plan consultant to find those savings and set up the best plan for you.