A lot of small business owners would like to offer their employees a retirement plan. What stops them usually isn't a lack of goodwill it's the worry that a 401(k) is too expensive and too complicated for a company their size. For years that worry was understandable. But Congress changed the math, first with the SECURE Act of 2019 and then with SECURE 2.0 in 2022, and a lot of owners haven't caught up to just how generous the incentives have become.
These laws were written with the small employer in mind. They turn "we can't afford a retirement plan" into "we can't afford not to look at one," because in many cases the government now picks up a large share of the cost. Here are four incentives worth understanding.
Before I get into numbers, one important caveat: the specific dollar figures and rules below come from the SECURE Act and SECURE 2.0 and the IRS guidance under them, and these change. The figures here are current as of this writing, but you should always confirm the amounts and eligibility for the year you're actually planning around. I've flagged each figure accordingly.
Incentive #1: A Tax Credit for Your Startup Costs
The biggest hurdle for most small employers is the upfront cost of getting a plan started administration, recordkeeping, the setup work. SECURE 2.0 dramatically expanded the credit that offsets those costs.
For employers with 50 or fewer employees, the startup credit can cover 100% of eligible plan startup costs, up to an annual limit for the first three years. (For employers with 51 to 100 employees, the credit covers 50%.) The annual cap is generally the greater of $500 or $250 per non-highly-compensated eligible employee, up to $5,000 per year.
Run that out and a small employer could potentially recover up to $15,000 across three years just on startup costs and that's before the other credits below. For a business that thought a plan was out of reach, that changes the conversation entirely.
Incentive #2: A Credit for Automatic Enrollment
The law also rewards employers who make it easy for employees to actually save. If your plan includes an automatic enrollment feature meaning employees are enrolled by default unless they opt out you can claim an additional credit of $500 per year for three years.
This one matters for a second reason. Under SECURE 2.0, most new 401(k) and 403(b) plans started in 2025 and later are required to include automatic enrollment anyway. So for many newer plans, this is a credit for doing something the law already requires a nice piece of overlap to take advantage of.
Incentive #3: A Credit for the Contributions You Make for Employees
Here's the one that surprises people most. SECURE 2.0 created a credit that helps offset the cost of the employer contributions you make on behalf of your employees not just the administrative costs.
For eligible small employers, this credit can be worth up to $1,000 per participating employee, phasing down over a five-year period. In other words, the government is willing to share the cost of the money you put into your employees' accounts, at least for the first several years. That's a meaningful offset against what is usually the single largest expense of running a plan.
Incentive #4: Easier, More Flexible Plan Options
The fourth incentive isn't a dollar figure it's flexibility, and it's just as valuable.
The SECURE Act made it far easier for small employers to band together and join pooled employer plans, which let unrelated businesses share a single, professionally run plan and spread the administrative burden and cost. It also opened the door wider to part-time employees participating over time and gave employers more workable options overall. The practical effect is that you no longer have to build and run a complex plan entirely on your own to offer your people a solid benefit.
Why This Is Worth Your Attention
Put the pieces together and the picture is striking. A small Central Illinois employer can potentially:
- Recover most or all of the startup costs through the startup credit
- Pick up an extra credit for automatic enrollment
- Offset a chunk of the actual contributions made for employees
- Join a pooled plan so the administrative load isn't all on your shoulders
That's a very different equation than the one that scared owners off for years. And the benefits run both directions: your employees get a real path to retirement security, and you get a powerful tool for recruiting and keeping good people something every small employer in this labor market is thinking about.
Common Mistakes to Avoid
Two things trip people up. First, assuming you don't qualify. These incentives are aimed squarely at smaller employers the very businesses that assume tax credits like this are only for big companies. Second, chasing the credits without the right setup. The dollar amounts above depend on meeting specific eligibility rules and choosing a plan structure that actually unlocks them. A plan put together carelessly can leave real money on the table.
This is also a place where good planning overlaps with the rest of your financial picture. How you fund and structure a retirement benefit ties into how your business is organized and into your own long-term estate planning, so it's worth looking at the whole thing together rather than in pieces.
A Practical Next Step
The SECURE Act and SECURE 2.0 genuinely tilted the field toward small employers but only for those who take advantage of them, with the figures confirmed for the year they're planning in. If you've been putting off a retirement plan because you assumed it was too expensive, the numbers may look very different than you expect.
Our business law practice can help you understand how these incentives apply to your specific business and coordinate with your accountant or plan advisor so you set things up the right way and capture the credits you're entitled to.