If you did not already open a self-directed solo 401k in 2023 or did not add the auto enrollment tax credit to your existing solo 401k, don’t worry as it is not too late to now take advantage of this government tax credit in 2024.
By opening a solo 401k by December 31, 2024, self-employed businesses will qualify for the $1,500 small employer automatic enrollment dollar-for- dollar tax credit spread over 3 (three) years in $500 per year increments. 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.
With these tax credits, the ultimate cost to open and maintain a Solo 401k is FREE:
- The $1,500 government stimulus is GREATER than the costs to open and maintain the self-directed Solo 401k for 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.
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**
Are existing Solo 401k plans eligible to claim the credit?
I have an existing Solo 401k plan. Can I add an auto-contribution feature to my existing Solo 401k plan and then claim the credit?
• An Auto-Contribution may be added to an existing plan and then the credit may be claimed.
How do I claim the credit?
• The credit is claimed by filing Form 8881.
When is the deadline to claim the credit starting in 2024?
For New Solo 401k Plans
Sign up for a new solo 401k plan by 12/31/2024 to claim tax credits starting in 2024.
Convert Existing Solo 401k Plans
Convert an existing plan by 12/31/2024 to claim tax credits starting in 2024.
Tax Credit vs Tax Deduction
Setting up our Solo 401k qualifies for up to $1500 in tax credits (not a tax deduction!)
What is the cost to open a Solo 401k?
Solo 401k Plan Cost Calculator: The Impact of Tax Credits
