The Retirement Plan Startup Credit
If you start a 401(k), SEP, or SIMPLE plan for your team, SECURE 2.0 can reimburse almost the entire cost of setting it up - plus a credit for the money you contribute on your employees' behalf.
In a nutshell
- Covers up to 100% of plan startup costs (employers with ≤50 employees), capped at the greater of $500 or $250 per eligible non-highly-compensated employee - max $5,000/yr for 3 years.
- An extra $500/yr for 3 years (§45T) for adding automatic enrollment.
- An employer-contribution credit of up to $1,000 per employee (earning ≤$100k), phasing down over 5 years.
- Eligible employers have 100 or fewer employees; the richest benefit is for those with 50 or fewer.
- Claimed on IRS Form 8881, flowing into the General Business Credit (Form 3800).
How the math works
Worked example
A 10-employee restaurant starts a 401(k), spends $3,000 in startup costs, and adds auto-enrollment.
- • Startup credit: 100% of $3,000, capped at $250×8 NHCEs = $2,000
- • Auto-enrollment credit: $500
- • Estimated §45E/§45T credit: $2,500 (year 1)
Do you qualify? The real limits
The bright-line tests and the things that quietly disqualify a business (2026 tax year).
What can disqualify you
- Ineligible if you (or a commonly-controlled affiliate) maintained a qualified plan for substantially the same employees in the prior 3 years.
- The plan must cover at least one non-highly-compensated employee.
- A state auto-IRA (CalSavers, OregonSaves, IL Secure Choice) is NOT a §45E-qualifying plan - the credit applies only if you start a real 401(k)/SEP/SIMPLE.
- Related businesses are combined for the 100-employee test.
Common reasons businesses get denied
- A qualified plan covering substantially the same employees existed in the prior 3 years (the predecessor-plan rule).
- More than 100 employees once related entities are combined.
- The plan covers no non-highly-compensated employee.
- Claiming a state auto-IRA (CalSavers, OregonSaves, etc.) - those aren't §45E-qualifying plans.
- Claiming startup costs beyond the 3-year window, or amounts that aren't qualified plan costs.
Even if you qualify
- Nonrefundable (General Business Credit liability limit; unused carries back 1 / forward 20).
- No double benefit - costs used for the credit aren't also deducted.
Check your state
State figures as of June 2026; many are indexed and change mid-year. Confirm with your state labor department and CPA.
Limits that apply to every federal credit
- They're nonrefundable
- Every credit here offsets income tax but can't create a refund (§38 liability limit). A business with little or no tax liability gets little benefit this year - unused amounts carry back 1 year and forward up to 20 (§39).
- Related businesses are combined
- If you own multiple businesses under >50% common control, the IRS treats them as ONE employer for the size tests (§52/§414). Several small entities can together blow past the under-25-FTE, 30-employee, or 100-employee ceilings even though each looks small alone.
- No double-dipping
- The deduction for the wages/premiums/expenses behind a credit is reduced by the credit amount (§280C), and the same dollar can't fund two different credits.
- Pass-through & passive limits
- For S-corps and partnerships the credit flows to owners on a K-1, where each owner's liability and passive-activity limits (§469) decide how much they can actually use.
Plain-English summary, not tax advice. Your CPA confirms eligibility for your specific business.
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