"Tax Talk" - Fall 2020
As we begin to wrap up the year and the COVID-19 crisis continues to impact our communities, ABG Southwest is ready to help in any way we can, from discussing retirement plan participation and trends to highlighting approaching deadlines. In this issue of Tax Talk, we provide some important upcoming compliance due dates for defined contribution plans as well as the SECURE Act Start-Up Tax Credit.
Upcoming Compliance Deadlines
December 1, 2020
- Final deadline to distribute the following annual plan notices: 401(k) safe harbor; annual notice for safe harbor plans providing a matching contribution; QDIA annual required notice; annual automatic enrollment; and default investment notices.
- Deadline for a plan to amend to elect safe harbor status based on non-elective contributions for the current plan year.
December 15, 2020
- Extended deadline for providing summary annual reports to participants if the form 5500 deadline was extended because of filing Form 5558.
December 31, 2020
- RMD is due to participants who reached their required beginning date prior to 2019.
- Deadline for a plan to make ADP/ACP corrective distributions for the previous plan year to affected participants to maintain qualified status.
- Deadline for correcting a failed ADP/ACP test by making a qualified non-elective contribution (QNEC) to all non-highly compensated employees.
- Deadline to adopt discretionary amendments to the plan, subject to certain exceptions.
- Deadline for a plan to amend to elect or remove safe harbor status based on matching contributions for the following plan year.
Tax Credit Makes Retirement Plan Start-Up Costs More Affordable
Signed into law at the end of 2019, the Setting Every Community Up For Retirement Enhancement Act (SECURE Act) includes an array of provisions that make it the most extensive retirement plan legislation since the Pension Protection Act of 2006. One of those provisions permits a small business to claim a tax credit for adopting a new retirement plan. Here are the details:
- Eligible small businesses can now claim 50% of necessary eligible startup costs for a retirement plan up to a maximum of $5,000 per year for three years. This is a total of $15,000 in tax credits over the three-year period.
- For the first year when the Plan is established and each of the following two years, the tax credit available is:
- The greater of $500, or the lesser of $250 for each non-highly-compensated employee who is eligible to participate in the Plan, or $5,000 (the maximum credit per year).
- The tax credit is available when an employer is establishing a new retirement plan, including 401(k) Plans, 403(b) Plans, Profit Sharing Plans, Cash Balance Plans, SIMPLE IRAs, and SEP IRAs.
- This credit is not available if the employer offered a plan in the previous three years that covered the same employees.
- This start-up tax credit reduces the employer’s tax liability dollar for dollar.
As a result of this new provision, implementing a retirement plan for employees may be more feasible for small businesses that may be in the position to take that next step.
In addition, for a plan that implements an automatic enrollment feature in 2020 or later, a $500 credit is available in the year of implementation and for each of the following two years. Contact your local ABG representative with any questions you may have about compliance deadlines, this new tax credit, or any of the retirement plan-related provisions of the SECURE Act.
We Welcome Your Questions
As always, we are standing by to support you and your employees in these ever-changing times. Please contact your ABG Southwest primary relationship manager for additional information or assistance in meeting some of these important deadlines.
Challenging times require making tough decisions, quickly. You can count on us to keep you briefed on new funding sources, compliance updates, planning resources and more essential updates regarding the COVID-19 health crisis. Access REDW’s COVID-19 Resource Hub.