What a small business retirement plan really costs after SECURE 2.0 credits
For eligible employers with up to 50 employees, SECURE 2.0 credits can cover up to 100% of plan startup costs (capped at $5,000 a year for three years) plus up to $1,000 per eligible employee in employer contributions. A third credit rewards automatic enrollment. For the smallest businesses, that can offset a large share of the early cost.
Who qualifies
Generally, an employer qualifies if it had no more than 100 employees who earned at least $5,000 in the prior year and has at least one non-highly-compensated employee eligible for the plan. The startup and employer-contribution credits generally don’t apply if the business maintained a plan for substantially the same employees in the prior three years.
Credit 1: Startup costs (3 years)
- 100% of eligible startup and administration costs for employers with up to 50 employees (50% for 51–100).
- Annual cap: the greater of $500 or the lesser of $250 per eligible non-highly-compensated employee or $5,000.
Credit 2: Employer contributions (5 years)
- Up to $1,000 of the employer’s contributions per eligible employee, for employees whose FICA wages are no more than the annual limit ($105,000 for 2025, adjusted each year for inflation).
- Phases down: 100% in years 1 and 2, 75% in year 3, 50% in year 4, 25% in year 5.
- Full credit for employers with 50 or fewer employees; reduced for 51–100.
Credit 3: Automatic enrollment (3 years)
An extra $500 per year for three years when a 401(k) or SIMPLE IRA includes an eligible automatic-enrollment feature, including new 401(k)s that must auto-enroll under SECURE 2.0.
A worked example
A six-person dental practice adopts a SIMPLE IRA. The owner earns $180,000; five employees each earn $50,000 and receive the full 3% match.
| Practice matches (owner + 5 employees) | $12,900 |
|---|---|
| Illustrative first-year plan cost | $1,250 |
| Gross first-year business cost | $14,150 |
| Potential federal credits ($1,250 startup + 5 × $1,000 contributions) | −$6,250 |
| Estimated cost after credits | $7,900 |
For the year, the owner’s account receives $23,500 ($18,100 in salary deferrals plus a $5,400 match) and the five employees receive $7,500 in matching dollars.
Two cautions before counting on the credits
- Credits are claimed on IRS Form 8881 and reduce the deduction you would otherwise take for the same costs; you can’t double-count.
- Eligibility depends on your facts. Your CPA should confirm eligibility; your plan adviser should design the plan to capture it.
Hypothetical illustration only, not a quote, projection or tax advice. Assumes the employer, plan and all five employees qualify for the credits at the first-year rate. The plan cost shown excludes any investment advisory fee, which is separate. Credits are not guaranteed.
Want to try your own numbers? Use our SECURE 2.0 tax credit calculator.
Common questions
Which SECURE 2.0 tax credits can a small business claim?
Eligible employers can claim a startup cost credit for three years, an employer contribution credit for up to five years and an automatic enrollment credit of $500 a year for three years.
Who qualifies for the startup credit?
Generally, employers with no more than 100 employees who earned at least $5,000 in the prior year, with at least one non-highly-compensated employee eligible for the plan. Your CPA should confirm eligibility.
How are the credits claimed?
On IRS Form 8881. The credits reduce the deduction you would otherwise take for the same costs.
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Request a plan reviewGeneral educational information as of September 24, 2026; limits and rules change. Not individualized investment, tax or legal advice. Consult your tax adviser about your situation.