Are Tax-Exempt Employers Eligible for Secure 2.0 Credits for Starting a Retirement Plan?

Q: Do you know if the Secure 2.0 Act of 2022’s credits for small employer retirement plan start-up costs apply to tax-exempts?

Kimberly Boberg, Taylor Costanzo, Kelly Geloneck and David Levine, with Groom Law Group, and Michael A. Webb, senior financial adviser at CAPTRUST, answer:

A: Unfortunately, they do not. Though it would be nice if there were some sort of government incentive for small, tax-exempt employers to establish retirement plans, particularly with the contribution-based credit that was added to the SECURE 2.0 Act in Section 102.

The SECURE 2.0 Act, like its predecessor, the Setting Every Community Up for Retirement Enhancement Act of 2019, centers such incentives around tax credits. Tax credits, by definition, cannot apply to tax-exempt organizations, since such entities do not pay the type of taxes from which a credit can be taken. The Experts wrote a column on this issue after the original SECURE Act was passed, and the exact same logic applies to the SECURE 2.0 Act.

Perhaps Congress will consider incentivizing tax-exempt entities to establish plans in the future, but for now, this is certainly a distinction between taxable and tax-exempt entities.

NOTE: This feature is to provide general information only, does not constitute legal advice and cannot be used or substituted for legal or tax advice.

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