What a Small Business Retirement Plan Really Costs After SECURE 2.0 Credits
"We can't afford a plan" is the most common reason small businesses wait. The SECURE 2.0 Act changed that math. Eligible employers can claim three separate federal credits — and for the smallest businesses, they can cover most of the early cost.
Who qualifies
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. The startup credit is also generally unavailable 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 per eligible employee of the employer's contributions, for employees earning up to roughly $100,000 (the threshold is indexed; $105,000 in current IRS instructions).
- Phases down over time: 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 the plan adds an eligible automatic-enrollment feature.
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 |
Meanwhile the owner puts $22,400 toward retirement and the team receives $7,500 in matching dollars.
Two cautions
- 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 the credit; your plan adviser should design the plan to capture it.
Hypothetical illustration only — not a quote, projection or tax advice. Credits are not guaranteed.
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Request a complimentary plan reviewGeneral educational information as of September 22, 2026; limits and rules change. Not individualized investment, tax or legal advice. Consult your tax adviser about your situation.