Coming Fall 2024

As part of the SECURE Act 2.0, the IRS offers a new tax credit known as the Eligible Automatic Contribution Arrangement (EACA) or auto-enrollment credit. By incorporating the EACA features into your Solo 401k plan documents, you can receive a $1,500 tax credit ($500 annually for three years), starting with your 2024 tax return.

This credit can effectively make your Solo 401k free for the next three years.

By default, auto-contributions are set to 3% of your compensation as an employee. However, you can override the 3% agreement and decide to contribute more, less, or nothing by making an election by December 31, 2024 (explained further below).

You're eligible for the tax credit as long as this feature is included in your Solo 401k plan. The 3% auto-contribution can be overridden by making a Solo 401k election, and you’ll still receive the full tax credits.

Remember to claim the credit when you file your taxes by filing IRS Form 8881.

You still get the tax credit even if you make $0 in contributions, just for having the auto-enrollment feature enabled in your Solo 401k plan documents with Nabers Group. You are not required to make contributions to qualify for the tax credit.

A Solo 401k election is a written document specifying how much you, as an employee, wish to contribute to your Solo 401k plan and which accounts (pre-tax or Roth) the contributions should go into. Please keep a copy of the election form on file for your records, in case the IRS ever asks for it.

Your Solo 401k portal includes an electronic contribution election form you can download, print, and store for safekeeping.

Without an election, you must contribute precisely 3% of your compensation, risking taxes and penalties for under- or over-contributing. Making an election allows you to adjust your contributions freely.

There is generally no penalty for contributing less than what you elected. So, making an election allows you to elect to make more significant contributions and gives you the option to contribute less or nothing at all by the contribution deadline.

The EACA Amendment concerns employee salary deferral contributions. These can be up to 100% of your compensation. The maximum allowable employee contribution for 2024:

If you do not change your automatic contribution election from the default, you must contribute 3% of your compensation to the Solo 401k as an employee (salary deferral contribution).

Example:

A tax credit is a dollar-for-dollar reduction in federal taxes you owe to the IRS. Usually, a tax credit is even better than a tax deduction. A deduction only reduces your taxable income, whereas a tax credit directly reduces the actual amount of taxes you pay.

The $500 yearly tax credit reduces your tax liability by $500. You can also claim a tax credit for taxes paid in a past year, or even carry forward the credit to a future year if you don't need it right away.

The EACA tax credit is a "non-refundable" credit. This means the tax credit reduces the taxes you owe but doesn't increase your refund or create a tax refund if you don't already have one.

Even though you still pay the Solo 401k maintenance fee, the $500/year tax credit for three years covers the cost, making the plan effectively free.

Though your document fee may be less than $500, you can still claim the full $500 per year tax credit for the next 3 years.

We’ve made it easy for new users to set up an eligible plan from the start. Your new Solo 401k includes auto-contributions that are already enabled. All you need to do is complete the election form to contribute more than the 3% default, less, or none at all.

Existing users will need to Docusign the updated plan to activate this auto-enrollment feature and receive the tax credit. Plans must be amended by December 31, 2024, to start receiving the credit for the 2024 tax year; existing plans are eligible for three years.

If you're a new or existing user, at tax time, you’ll file Form 8881, along with a few other forms, with your tax return to claim the credit.

The EACA credit is part of the 2022 SECURE 2.0 Act, encouraging small businesses to adopt the auto-contribution feature before it likely becomes mandatory in most 401k plans in 2025.

If your current provider does not support auto-contributions, you can restate your plan with a provider like Solo401k.com and enable this feature by December 31, 2024.

Ensure your plan is compliant, make any necessary elections, and be sure to file Form 8881 with your tax return to take full advantage of this beneficial tax credit.