One of the biggest hurdles for small businesses considering a 401(k) plan is cost. The SECURE Act 2.0 significantly reduces that concern by expanding tax credits that can cover most — and in some cases, nearly all — of the expenses related to starting and running a retirement plan.

Here are the main credits available:

1. Startup Cost Tax Credit

• Covers 100% of eligible administrative costs for businesses with up to 50 employees (previously capped at 50%).
• Maximum credit: $5,000 per year, for three years.
• Eligible expenses include recordkeeping, advisory services, third-party administrator services, and plan document preparation.

2. Employer Contribution Tax Credit

• A new credit designed to offset the cost of making employer contributions.
• Applies to businesses with up to 100 employees.
• Credit is equal to a percentage of employer contributions (up to $1,000 per employee).
  • 100% in years 1–2
  • 75% in year 3
  • 50% in year 4
  • 25% in year 5
• Phases out for employers with 51–100 employees.

3. Auto-Enrollment Credit

• An additional $500 per year for three years for implementing automatic enrollment.
• Can be claimed on top of the startup cost credit.

What This Means for Business Owners

For many small businesses, these combined credits can make launching a 401(k) plan essentially cost-neutral for the first several years. If fees billed directly to the business, expenses that exceed tax credit limits qualify as a tax deductible business expense. Beyond the tax benefits, offering a retirement plan strengthens employee retention, recruiting, and helps owners maximize their own retirement savings.

👉 If you haven’t reviewed whether your business qualifies, now is the perfect time to explore the opportunity. Contact us today!