As a business owner or 401(k) plan sponsor, you might be eligible for thousands of dollars in tax credits when starting a retirement plan or contributing to employee accounts. Thanks to the SECURE Act 2.0, passed in December 2022, new and expanded tax incentives are available through 2025 and beyond to encourage small businesses to launch retirement plans and support employee savings.
This guide walks through the primary retirement plan tax credits available and how they can benefit your business.
Overview of Tax Credits Under the SECURE Act 2.0
The SECURE Act 2.0 offers four key tax credits for eligible employers:
- Startup Credit: Covers a percentage of qualified startup expenses, up to $5,000 per year.
- Auto-Enrollment Credit: $500 per year for implementing automatic enrollment.
- Employer Contribution Tax Credit: Up to $1,000 per employee for employer contributions.
- Military Spouse Credit: Up to $500 for hiring and supporting the retirement of military spouses.
1. Startup Credit
This credit offsets the cost of setting up a new retirement plan—like a SEP, SIMPLE IRA, or 401(k)—and applies to necessary startup expenses, including plan administration and employee education.
How much is the credit?
- For employers with 50 or fewer employees, the credit is 100% of eligible startup costs, up to $5,000/year.
- For employers with 51–100 employees, the credit is 50% of eligible startup costs, up to the same maximum.
- The credit is calculated as the greater of:
- $500, or
- The lesser of: $250 × number of non-highly compensated employees (NHCEs), or $5,000.
Eligibility requirements:
- 100 or fewer employees who received at least $5,000 in compensation last year.
- At least one participating NHCE.
- No substantially similar plan in place in the previous three years.
Use IRS Form 8881 to claim this credit.
2. Auto-Enrollment Credit
This credit rewards businesses that implement automatic enrollment to encourage higher employee participation.
How much is the credit?
- $500/year for three years (up to $1,500 total).
Eligibility requirements:
- Must implement an auto-enrollment feature in a new or existing retirement plan.
3. Employer Contribution Tax Credit
Designed to reduce the cost of making employer contributions, this credit phases out over five years.
How much is the credit?
- For employers with 1–50 employees, the credit covers:
- Year 1: 100% of contributions (up to $1,000/employee)
- Year 2: 100%
- Year 3: 75%
- Year 4: 50%
- Year 5: 25%
- For 51–100 employees, the credit is reduced by 2% per employee over 50.
Additional conditions:
- Only applies to employees earning less than $120,000/year in 2025 (adjusted annually for inflation).
4. Military Spouse Tax Credit
Employers hiring military spouses may qualify for an additional tax credit if certain plan conditions are met.
How much is the credit?
- $200 for hiring a military spouse, plus 100% of employer contributions up to $300.
- Maximum credit: $500/year per military spouse, for up to 3 years.
Eligibility requirements:
- Must not be a highly compensated employee.
- Must be eligible for the plan within 2 months of hire.
- Must be treated as if they’ve been employed for 2 years for contribution and vesting purposes.
Important Note on Deductions
You cannot deduct startup costs for which you also claim a tax credit. You are not required to claim the credit, but you must choose one option for each expense.
Why These Tax Credits Matter
Launching or improving a retirement plan can be a major financial decision—but these credits make it more accessible. They reduce the financial burden of offering competitive benefits and show employees that you’re committed to their long-term financial health.
If you’re considering a new plan or looking to enhance your current offerings, these incentives can make a meaningful difference. Be sure to consult your tax professional to confirm your eligibility and file the appropriate IRS forms.
Need guidance navigating your retirement plan options? Reach out to Navalign Wealth Partners—we’re here to help you make the most of every opportunity.