Solo 401k - how to I claim the $500 tax credit?

[alira72]

Hi,

I set up a solo 401k (self-employed, no employees) with auto-enrollment option, in February 2026 and I will make contributions for 2025.

Can I claim the $500  ($1500 spreed over 3 years) auto-enrollment option tax credit for 2025, or only for 2026 and forward (2027 and 2028)? Form 8881 Part II.

Thanks

[dmertz · Accepted solution]

[Deleted my comment regarding highly compensated employees.  See follow-up post below.]

See:

https://www.irs.gov/retirement-plans/retirement-plans-startup-costs-tax-credit

https://www.irs.gov/publications/p560#en_US_2024_publink10008807

https://www.irs.gov/pub/irs-pdf/i8881.pdf

[alira72]

Hi dmertz,

What I'm referring to is not the startup credit.

Is the tax credit under Section 45T that it applies to "eligible employers" who include an "eligible automatic contribution arrangement"

This is on Part II of from 8881 - Small employer auto enrollment credit.

Thanks

[dmertz · Accepted solution]

Interesting that section 45T does not include the requirement that there be at least one NHCE the way section 45E does.

My reading of section 45T and Pub 560 is that the the credit for a particular taxable year (that which can be claimed on a particular tax return) is $500.  It wouldn't makes sense to allow the credit with respect to 2026 or 2027 because in 2025 it cannot yet have been established that the arrangement was maintained for 2026 and 2027.  Assuming that your plan maintains the arrangement for three years, you would claim a credit of $500 on your 2025 tax return, $500 on your 2026 tax return and $500 on your 2027 tax return.