Could Adding Employer Contributions To An Existing Plan Prompt Tax Credits?

Q: I read with great interest your Ask the Experts column on the startup tax credits for a new plan of a physician’s practice where the physician worked for an unrelated hospital as well. I have a nearly identical situation, except my private practice has had a 401(k) plan for many years. However, the plan has never had employer contributions. Could I add employer contributions to the plan this year and receive the startup tax credits?

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, no. The startup tax credits only apply to newly established retirement plans, not to plans that add new features, meaning existing plans that are not otherwise eligible for the credit cannot become eligible by adding employer contributions as a new feature. A plan is also not eligible for the credit if a prior plan sponsored by the practice was in existence during the three-year period prior to the establishment of the new plan, or the practice benefitted from another plan of an entity that owned or controlled it during that three-year period.

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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