The Overlooked Tax Credit That Puts Cash Back In Your Pocket (For Your Business)
Why It Matters
The credit provides up to $1,500 of direct tax relief, incentivizing solo 401(k) adoption and strengthening retirement savings for small‑business owners.
Key Takeaways
- •EACA tax credit gives $500 annually for three years.
- •Applies to eligible solo 401(k) or traditional 401(k) plans.
- •No contribution required; just include automatic contribution language.
- •Credit is non‑refundable and cannot be carried forward.
- •Available to S‑corp and partnership sponsors; flows through K‑1.
Summary
The video explains the Eligible Automatic Contribution Arrangement (EACA) tax credit, a little‑known provision of the Secure 2.0 Act that puts cash directly into a business’s pocket. Eligible sponsors of a solo 401(k) or traditional 401(k) can claim a $500 credit each year for up to three years, totaling $1,500.
The credit is non‑refundable, cannot be carried forward, and does not require an actual contribution—only that the plan document contain language mandating an automatic 3% contribution unless the sponsor opts out. Existing plans can be amended to include this clause, and the credit applies to S‑corporations, partnerships, and other sponsoring entities, flowing through the owner’s K‑1.
Toby emphasizes, “the government is paying you to start your own solo 401(k).” He notes that even owners without current salary can qualify by simply inserting the automatic‑contribution provision and opting out if needed. Savannah Wallace adds that the credit is the sole federal incentive available to solo 401(k)s, unlike the startup‑cost credit limited to traditional plans.
For small‑business owners, the EACA credit offers a modest but immediate tax reduction, encouraging the adoption of retirement plans that also aid employee retention and long‑term wealth building. Prompt plan amendment ensures businesses capture the full $1,500 benefit over three years.
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