Existing Solo 401k Clients Are Also Eligible for the Auto Enrollment Tax Credit (aka Auto Contribution Arrangement)

January 4, 2024 | By Mark Nolan

Last Updated 1/5/2026

Existing solo 401k clients plan documents can be updated to qualify for the $1,500 small employer automatic enrollment dollar-for- dollar tax credit spread over 3 (three) years in $500 per year increments. Existing solo 401k plan documents that are updated in 2026 will result in being able to claim a total of $1,500 in tax credits in $500 dollar increments over three years starting with the year 2026 tax return.

The credit is effective for in the year the self-directed solo 401k auto contribution credit is first included in the solo 401k plan documents. Therefore, it can be added to both existing and new solo clients’ plan documents so that the credit can be claimed for the three consecutive years.

What are the eligibility requirements to claim the credit?

• A self-employed person must have a Solo 401k plan like a plan from My Solo 401k Financial with Auto-Contribution feature.

The $1,500 government stimulus is GREATER than the costs to open and maintain the self-directed Solo 401k for years.

What is an Auto-Contribution feature?

• A Solo 401k plan with an auto-contribution feature has a default 3% contribution percentage and the self-employed business can claim a credit of $500 per year (up to 3 years for a total of $1500) for including an automatic contribution feature in a new or an existing solo 401k plan.

**However, you can opt out of the default 3% contribution amount and then decide to make contributions in whichever amount you prefer including simply making no contributions. In other words, you are not required to make annual solo 401k contributions to qualify for the tax credit**

How do I claim the credit?

• The credit is claimed by filing F orm 8881.

Tax Credit vs Tax Deduction

Updating your existing Solo 401k qualifies for up to $1500 in tax credits (not a tax deduction!)

https://youtube.com/live/n9msT2Iw1AM

QUESTION: 2 (Two) Solo 401k Plans

We have 2 solo 401K plans with you (ABC Trust and XYC Trust).

How do we amend the plans to add the auto-contribution feature so we can claim the $1,500 in tax credits?

ANSWER:

Your plan would need to be updated. Please note that if you are spouses, only one $1500 tax credit may be claimed between the two of you (even though you have separate solo 401k plans).