Eligibility for the Solo 401(k) Auto-Contribution Tax Credit

The Solo 401(k) auto-contribution tax credit is a game-changer for solo business owners looking to save on taxes while planning for retirement. By enabling automatic contributions to your Solo 401(k) plan, you can earn up to $1,500 in tax credits over three years.

Solo 401(k) plans, also known as Self-Employed 401(k) or Individual 401(k) plans, are designed for solo business owners and offer the same benefits as traditional 401(k) plans. These plans can be opened for free at major brokerages like Schwab and Fidelity, but specialty providers like My Solo 401k Financial make the process easier for a fee.

The Solo 401(k) auto-contribution tax credit is part of the SECURE Act 2.0, which encourages businesses to offer 401(k) plans with automatic contributions. Freelancers and business owners with no employees are eligible for the credit, which amounts to $500 per year for three years.

To claim the tax credit, you must complete and submit Form 8881, which is a simple one-page form that can be completed in minutes. The credit is calculated in Part II of the form, and eligible employers can claim $500 per year for a three-year taxable period.

Overall, the Solo 401(k) auto-contribution tax credit is a valuable opportunity for solo business owners to save on taxes and boost their retirement savings. With the potential to earn $1,500 in tax credits, it’s a win-win for those looking to secure their financial future.