Most employers who have not started a retirement plan think they cannot afford one. Research from the Center for Retirement Research at Boston College found that over half of small firms believe a plan would cost more than $10,000 a year to run, and more than a quarter put the figure above $20,000. Most also expect to spend several days a month administering it, when after setup it is closer to a few hours a year.
Those expectations are usually well above reality, and that is before any of the federal credits are counted. There are four, and together they can cover a meaningful share of what it costs to get a plan off the ground. None of them are secret. They are just not well known, and they are claimed on a tax form most owners have never had a reason to look at.
1. The startup costs credit: up to $5,000 a year for three years.
This is the big one. If you have 100 or fewer employees who earned at least $5,000 in the prior year, you may claim a credit against the cost of setting up and administering a new plan, plus educating employees about it. At 50 or fewer employees the credit covers 100% of eligible startup costs. Between 51 and 100 it covers 50%. The ceiling each year is the greater of $500 or the lesser of $250 times your eligible non-highly-compensated employees, or $5,000, and you need at least one of those employees participating.
2. The employer contribution credit: up to $1,000 per employee.
Separate from the startup credit, and this one is tied to the money you actually put in for your people. With 50 or fewer employees you can claim 100% of your contributions in the first two plan years, up to $1,000 per employee, then 75% in year three, 50% in year four and 25% in year five. Between 51 and 100 employees each of those percentages is reduced. It only counts contributions for employees who earn $100,000 or less. That limit is adjusted for inflation each year, so check the current figure with your CPA.
3. The automatic enrollment credit: $500 a year for three years.
Add an eligible automatic enrollment feature and you can claim $500 a year for three years. This is the one worth knowing if you already have a plan, because unlike the other credits it is available to existing plans and not only to new ones. Automatic enrollment also tends to be the single most effective change you can make to participation, so the credit is paying you to do something that was probably worth doing anyway.
4. The military spouse credit: up to $500 per spouse.
Less widely applicable, and easy to miss if it does apply to you. If you have between one and 100 employees and you hire the spouse of a service member, you may claim $200 for employing them plus up to $300 of the contributions you make on their behalf, for the first three years they participate. The spouse cannot be a highly compensated employee.
Do These Credits Expire?
These credits are often described as being available for a limited time, which causes some understandable confusion. The IRS does not publish an expiration date for any of them. What is limited is the window for each employer: the startup credit runs three years, the contribution credit phases down over five and then stops, and the automatic enrollment credit runs three. The clock starts when your plan does.
So there is no deadline to beat. Waiting does not forfeit the credits, it just delays them. But it is worth knowing that the credits are front-loaded into the early years of a plan, because that changes the arithmetic of starting one now rather than next year.
How to Find Out What You Qualify For
If the reason you have not looked at a retirement plan is cost, the honest answer is that the number in your head is probably too high, and the credits bring the real number down further. Whether you qualify depends on your headcount, your compensation figures and whether you have sponsored a plan before, which makes it a question for your CPA rather than something to settle from an article. All four are claimed on IRS Form 8881, which is a useful thing to be able to name when you ask them.
We do not prepare returns, and we are not trying to. What we can do is work out which plan type fits your company, flag which of these credits are likely to be in play, and put it in front of your tax advisor while there is still time to act on it. The team at Cramer Capital Management can walk through what a plan would look like for your business, what it would genuinely cost, and whether starting one makes sense this year. Call 913-948-6770 to set up a conversation.
Sources: Internal Revenue Service, Retirement Plans Startup Costs Tax Credit, reviewed May 2026. Chen, A. and Munnell, A., Small Business Retirement Plans: A Primer, Center for Retirement Research at Boston College, August 2026.
This information is not intended as tax or legal advice. Please consult a qualified tax professional or attorney about your own situation. Credit amounts, eligibility rules and thresholds are set by federal law and can change. All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful.