Many Solo 401k account holders with plans at discount brokerages at Fidelity, Schwab, E-Trade, Vanguard, etc. are asking how they can modify their Solo 401k plan to add the auto-enrollment feature (Eligible Automatic Contribution Arrangement or “EACA”) so that their self-employment business would be eligible for the Solo 401k Tax Credit.
This post explains why it’s not possible to simply “check the box” to add the auto-enrollment feature to be eligible to claim the credit.
Q: What is the Solo 401k Auto-Enrollment Tax Credit?
A: The Solo 401k auto-enrollment tax credit is part of the incentives introduced under the SECURE Act 2.0 to encourage small businesses to adopt retirement savings plans that automatically enroll participants. Eligible businesses can claim a tax credit of $500 per year for up to three years for adding an auto-enrollment feature to their Solo 401k plans.
Q: Can I simply modify my existing Solo 401k plan documents at Fidelity, Schwab, E-Trade, or Vanguard to add the Auto-Enrollment Feature?
A: In short: no.
First, based on a review of the published Solo 401k adoption agreements at Fidelity, Schwab, E-Trade, or Vanguard none of the adoption agreements include the auto-enrollment feature as an option that could be selected by the Solo 401k account.
Moreover, adding the auto-enrollment feature requires that additional notices and forms are provided and none of the discount brokerages provide the required forms.
Therefore, in order to properly add the feature to be eligible for the Solo 401k tax credit one would need to restate their plan to a Solo 401k plan like the one offered by My Solo 401k Financial which will not only include the feature in the plan documents but also include the additional required notices and forms.
