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This is the third of our articles on recent IRS “Grab Bag” guidance on certain provisions of SECURE 2.0 (Notice 2024-02) – guidance with respect to SECURE 2.0’s plan startup/contribution incentives.
Background
SECURE 2.0 includes –
Increased startup costs credit: An increase in the 3-year credit related to small employer startup costs for employers with no more than 50 employees from 50% to 100% of startup costs.
New contributions credit: A new 5-year credit for matching and nonelective contributions (to qualified plans other than DB plans) for employers with no more than 100 employees. The credit is limited to $1,000 per year for any employee whose wages are $100,000 or less. The credit is a percentage of the contribution made with respect to the employee, equal to: 100% for the first taxable year in which the plan is established; 100% for the second taxable year; 75% for the third taxable year; 50% for the fourth taxable year; and 25% for the fifth taxable year. The credit is phased-out for employers with more than 50, but no more than 100, employees.
Guidance
The Grab Bag guidance:
Re-affirms that the 5-year contributions credit is a separate credit, not subject to the limits on the startup costs credit.
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In our final article in this series, we will briefly review/note other “Grab Bag” guidance relevant to plan sponsors.