⬤ USA Today
2023 Best Financial Advisory Firms
usa today best financial advisory firms 2023 logo for wellspring financial

Award based on independent survey carried out by USA TODAY and Statista. Firms need to be nominated by a participant in the survey. No prior registration is required, and no costs are involved for the nomination. The recommendations for each firm are summarized and evaluated anonymously. 
In addition to the survey results, additional metrics (e.g., data in relation to assets under management (AUM)) will be included in the final analysis.

● USA Today
2023 Best Financial Advisory Firms
usa today best financial advisory firms 2023 logo for wellspring financial

Award based on independent survey carried out by USA TODAY and Statista. Firms need to be nominated by a participant in the survey. No prior registration is required, and no costs are involved for the nomination. The recommendations for each firm are summarized and evaluated anonymously. 
In addition to the survey results, additional metrics (e.g., data in relation to assets under management (AUM)) will be included in the final analysis.

| ← Back to Blog Home

401(k) Plan Tax Credit Summary

Eligible employers may be able to claim a tax credit of up to $5,000, for three years, for the ordinary and necessary costs of starting a SEP, SIMPLE IRA or qualified plan (like a 401(k) plan.) A tax credit reduces the amount of taxes you may owe on a dollar-for-dollar basis.

If you qualify, you may claim the credit using Form 8881 PDF, Credit for Small Employer Pension Plan Startup Costs.

Eligible employers

You qualify to claim this credit if:

  • You had 100 or fewer employees who received at least $5,000 in compensation from you for the preceding year;
  • You had at least one plan participant who was a non-highly compensated employee (NHCE); and
  • In the three 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 plan sponsored by you, a member of a controlled group that includes you, or a predecessor of either.

Amount of the credit

The credit is 50% of your eligible startup costs, up to the greater of:

  • $500; or
  • The lesser of:
    • $250 multiplied by the number of NHCEs who are eligible to participate in the plan, or
    • $5,000.

Eligible startup costs

You may claim the credit for ordinary and necessary costs to:

  • Set up and administer the plan, and
  • Educate your employees about the plan.

Eligible tax years

You can claim the credit for each of the first three years of the plan and may choose to start claiming the credit in the tax year before the tax year in which the plan becomes effective.

No deduction allowed

You can’t both deduct the startup costs and claim the credit for the same expenses. You aren’t required to claim the allowable credit.

Auto-enrollment Tax Credit

An eligible employer that adds an auto-enrollment feature to their plan can claim a tax credit of $500 per year for a three-year taxable period beginning with the first taxable year the employer includes the auto-enrollment feature.


This material was created to provide accurate and reliable information on the subjects covered but should not be regarded as a complete analysis of these subjects. It is not intended to provide specific legal, tax or other professional advice. The services of an appropriate professional should be sought regarding your individual situation. 

To remove yourself from this list, or to add a colleague, please email us at info@wellspringfp.com or call (520) 327 – 1019.

See Also: