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Starting a 401(k)? SECURE 2.0 credits can cover up to $5,000 a year in plan costs, plus up to $1,000 per employee in employer contributions, for the first several years.
A new plan can cost far less than you think.
A free tax credit estimate for your business
Under SECURE 2.0, small businesses that start a new retirement plan can claim three federal tax credits. Credits reduce your tax bill dollar for dollar, which makes them more valuable than deductions.
Use our tax credit calculator for a quick estimate.
| Credit | How much | For how long |
|---|---|---|
| Startup cost credit | 100% of eligible plan costs for employers with up to 50 employees (50% for 51 to 100), up to the greater of $500 or $250 per eligible non-highly compensated employee, capped at $5,000 a year | First 3 years |
| Auto-enrollment credit | $500 a year for adding automatic enrollment | First 3 years |
| Employer contribution credit | Up to $1,000 per employee earning about $100,000 or less (adjusted for inflation). 100% in years 1 and 2, then 75%, 50%, and 25%. Reduced for employers with 51 to 100 employees | First 5 years |
The employer contribution credit applies to defined contribution plans like a 401(k), not to defined benefit plans, and doesn’t include employees’ own salary deferrals.
From first call to first contribution, we handle the design, the math, and the compliance.
1
We look at your income, age, staff census, and current plan to see what’s possible.
We layer your 401(k), profit sharing, and cash balance plan around your tax goals.
You get a clear illustration of your deduction, your savings, and your staff cost before you commit.
Plan documents, annual actuarial work, testing, and filings, handled every year.
A business with 10 eligible employees, all earning under $100,000, starts a safe harbor 401(k) with automatic enrollment and contributes about $1,500 per employee.
| Credit | Year 1 | Year 2 |
|---|---|---|
| Startup cost credit (on $3,000 of plan costs) | $2,500 | $2,500 |
| Auto-enrollment credit | $500 | $500 |
| Employer contribution credit | $10,000 | $10,000 |
| Total credits | About $13,000 | About $13,000 |
Hypothetical example for illustration only. The startup credit is limited to $250 per eligible non-highly compensated employee, here assumed to be 10. Credits depend on your costs, employees, and contributions. Confirm with your CPA.
Planning bigger contributions for owners? See The Retirement Plan Stack.
Michael, a successful business owner with no employees, wanted to maximize his retirement savings while minimizing taxes.
Through a custom-designed retirement plan stack, he and his wife were able to contribute over $575,000 across multiple plans in a single year.
This strategy not only helped secure their financial future but also generated over $222,000 in immediate tax savings, significantly increasing their cash flow and long-term wealth-building potential!
James runs a construction company with high employee turnover and wanted a way to protect cash flow while maximizing retirement contributions.
Through a custom 401(k) and profit-sharing plan design, we used strategic eligibility and vesting schedules to limit costs from short-term employees while allowing ownership to maximize contributions.
This strategy protected company assets, controlled expenses, and helped James build significant retirement wealth.
Eileen, a small business owner, needed a low-cost retirement plan that would meet state mandate requirements while helping her recruit and retain high-quality employees.
Eileen used a customized 401(k) solution focused on minimizing expenses, giving Eileen a competitive edge in hiring without pulling resources away from reinvesting in her growing business.
By using tax credits, her design allowed her to stay compliant, attract top talent, and keep her financial priorities aligned.
*These are hypothetical clients with hypothetical situations and plan designs.
Learn more: Tax Credit Calculator | Safe Harbor vs. Traditional | The Retirement Plan Stack | Tax Strategies for Business Owners | About Us
Up to $5,000 a year for three years for startup costs, $500 a year for three years for automatic enrollment, and up to $1,000 per eligible employee a year for employer contributions, phasing down over five years.
No. The plan must have at least one eligible non-highly compensated employee, so owner-only plans don’t qualify.
Not if you had a plan covering substantially the same employees in any of the three prior years.
No. Only employer contributions, such as a match or nonelective contribution, count, and only for employees earning about $100,000 or less, adjusted for inflation.
Your CPA claims them on IRS Form 8881 with your business tax return. We provide the plan cost and contribution records you need.
Yes. A credit reduces your tax bill dollar for dollar, while a deduction reduces taxable income. Expenses used for the credit can’t also be deducted.
The startup cost credit can apply to a new defined benefit plan, including a cash balance plan, if eligibility rules are met. The employer contribution credit does not.
Life, Inc. Retirement Services does not offer tax advice. Please always consult your tax professional about your eligibility for tax credits.
Life, Inc. Retirement Services is a Registered Investment Advisory Firm of the state of Ohio and licensed in Florida and Maryland. All emails and communication are meant to be informative and educational and should not be considered a sale of security until proper notification and disclosures are given.