SECURE 2.0 Tax Credit Calculator

The credit has two separate parts, both from IRC Section 45E and both claimed on IRS Form 8881. The first part covers plan startup costs. It equals $250 per eligible non-owner employee per year, with a $500 floor and a $5,000 annual cap, for the first three years. Employers with 50 or fewer employees have 100% of their costs covered up to that cap. Employers with 51 to 100 employees have 50% covered.

The second part is a contribution credit. It covers a share of the contributions you make for employees, up to $1,000 per employee, and phases down over five years: 100% in years one and two, then 75%, 50%, and 25%. At the cap, that is about $3,500 per employee across the five years. Both credits are nonrefundable, so they reduce the tax you owe rather than producing a standalone refund.

Take a business with five employees that adopts a SIMPLE IRA. The startup credit is $250 times five, which is $1,250 a year. Because the business has fewer than 50 employees, 100% of its plan costs are covered up to that amount, and it can claim it for three years, for $3,750 in startup credits.

On top of that, the contribution credit can reach $1,000 per employee in the early years and phases down over five years, for up to roughly $17,500 across the five employees. Added together, this business could claim more than $20,000 in credits over the credit window. Meanwhile IRAPilot runs the plan for free, with no subscription and no per-employee fee, so the plan more than pays for itself in the first three years.

A business qualifies if it had 100 or fewer employees who each earned at least $5,000 in the prior year, did not maintain a qualifying retirement plan in the previous three years, and has at least one participant who is not a highly compensated employee. The eligible employee count for the startup credit excludes owners. A SIMPLE IRA is a qualifying plan, so setting one up starts the credit clock.