If you run a business with fewer than 100 employees and you've never offered a retirement plan, there's a good chance cost was the reason. That reason doesn't hold up the way it used to.

Since the SECURE 2.0 Act, small businesses can qualify for up to three separate federal tax credits just for starting a retirement plan — credits that can cover the setup costs, a meaningful share of what the business contributes, and a bonus for making participation automatic. For a lot of businesses, that adds up to tens of thousands of dollars over the first several years.

Here's what those credits actually are, who qualifies, and what it can look like in practice.

Why This Exists

The SECURE 2.0 Act expanded and increased these credits specifically to close a gap: most Americans who don't have access to a retirement plan through work never end up saving for retirement on their own. Congress's answer wasn't a mandate — it was an incentive large enough to make the decision easy for the businesses that had been sitting on the sidelines.

That's worth saying plainly: this isn't a niche loophole. It's a deliberate, generous policy aimed at exactly the businesses that assumed a plan was out of reach.

The Startup Cost Credit

Employers can claim a tax credit of up to $5,000 per year for three years for the ordinary and necessary costs of setting up and administering a new retirement plan — the setup fees, the administrative costs, and educating employees about the plan.

The credit covers 100% of eligible costs for employers with 50 or fewer employees, and 50% of eligible costs for employers with 51–100 employees. To qualify, a business generally needs 100 or fewer employees earning at least $5,000 in the prior year, at least one non-highly-compensated employee participating in the plan, and no substantially similar plan sponsored in the previous three years.

In practice, this credit covers most or all of what it costs to get a small plan off the ground in the first place.

The Employer Contribution Credit

Separately, small employers can claim a credit for contributions made to the plan — up to $1,000 per employee earning under $100,000 (indexed for inflation). For employers with 50 or fewer employees, the credit covers 100% of contributions in years one and two, 75% in year three, 50% in year four, and 25% in year five. Employers with 51–100 employees see the credit reduced by 2% for each employee above 50.

This is the credit that scales with the size of the workforce — the more eligible employees a business contributes for, the larger the total credit.

The Auto-Enrollment Credit

On top of the other two, businesses that add an eligible automatic enrollment feature to a new or existing plan can claim an additional flat $500 per year for three years. Auto-enrollment tends to significantly increase employee participation, and this credit rewards making that a default rather than an opt-in.

What This Looks Like in Practice

A few illustrative (hypothetical) examples make the math easier to picture:

Riverside Bookkeeping, a 12-person firm with no retirement plan today, adds a 401(k) with auto-enrollment. Over the first three years, the startup cost credit covers most of the setup and administrative fees, and the auto-enrollment credit adds $500 a year — real money covering real costs, before a single dollar of the contribution credit is even factored in.

Crestline Manufacturing, a 45-employee company, launches a 401(k) with a modest employer match. At that headcount, the employer contribution credit alone can add up to a meaningful five-figure total over five years, on top of the startup cost credit. This is often the size of business that assumes these credits are only for very small companies — they're not. The ceiling is 100 employees.

Bright Path Marketing, an 18-person agency, starts a 401(k) with auto-enrollment from day one. Combining the startup credit, the contribution credit, and the auto-enrollment credit, a business this size could see a substantial total credit value over the first five years.

These are hypothetical, illustrative examples only — actual credit amounts depend on your specific employee count, wages, and contributions.

“We're Too Small” and Other Myths

Two objections come up constantly, and neither holds up anymore:

“We can't afford it.” Between the three credits above, most of the cost of starting and running a small plan for its first few years is covered — often close to all of it.

“We're too small to bother.” The credits apply to any business with 100 or fewer employees. A 12-person company qualifies exactly the same way a 90-person company does.

There's also a benefit beyond the tax credits worth naming: in a competitive hiring market, a retirement plan has shifted from a nice-to-have to something candidates expect. The credits make this a good year to close that gap; the retention benefit is the reason it's worth doing regardless.

A Deadline Worth Knowing About

If you want a plan in place by January 1, the timeline to start matters. Most plan setups take 60–90 days, which means the real deadline for a January 1 launch is well before December 31st — typically sometime in October. If this has been on your list, the fall is the time to actually make the call.

Find Out What Your Business Qualifies For

Every business's numbers look a little different, depending on headcount, wages, and plan design. If you're curious what your business would specifically qualify for, Anderson Financial offers a free, no-obligation Retirement Plan Tax Credit Assessment — about 15 minutes to walk through your numbers and see what's available.

This article is for general educational purposes and is not tax or legal advice. Actual credit eligibility and amounts depend on your specific plan design, employee census, and contributions. Consult a qualified tax professional to confirm what applies to your business.