EACA Is Not Supported at Most Discount Brokerages
If you have an individual 401k plan with a discount brokerage firm, like Fidelity, Schwab, E*Trade, or similar, you may be wondering if you can claim the automatic contribution enrollment feature (Eligible Automatic Contribution Arrangement or “EACA”).
Adding the EACA feature amendment to your Solo 401k plan enables you to claim a $1500 tax credit ($500 per year over 3 years).
What is the Solo 401k EACA Tax Credit?
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.
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 the past year or even carry the credit forward to a future year if you don't need it immediately.
Can't I Ask Fidelity or Schwab to Update the 401k Plan to Include EACA?
There are a few steps required of the plan sponsor (Nabers Group) to turn on the EACA amendment in your plan, namely:
Write applicable language in the Summary Plan Description and Plan Document to allow EACA contributions
Update provisions in the Adoption Agreement to include EACA and permissible withdrawals
Provide a(n) editable contribution election percentage
Prepare contribution election form
Provide Automatic Contribution Enrollment notice to all plan participants
Without the above items, the plan cannot turn on automatic contributions, and the sponsoring business (your business) cannot claim the tax credit.
Document Provider | Allow Auto-Enrollment | Eligible for Tax Credit | Plan Type |
Fidelity | No | No | Standardized plan, no customization |
Schwab | No | No | Standardized plan, no customization |
E*Trade | No | No | Standardized plan, no customization |
Nabers Group | Yes | Yes | Non-standardized plan with EACA option available |
To correctly add the EACA feature amendment to your Solo 401k plan, restate your 401k plan to Solo401k.com by Nabers Group and get access to all required plan language, notices, and forms so you can claim the tax credit.
And, remember the Solo 401k by Nabers Group also includes numerous features not offered by discount brokerage firms, like:
Roth 401k contributions
Spousal contributions
After-tax contributions
In-service distributions as part of the mega backdoor Roth strategy
401k Participant Loans
Access to alternative assets (e.g. real estate, crypto, private lending, venture capital, apartment syndications, and more)
To unlock the full potential of your retirement funds and claim the full EACA tax credit, restate your Solo 401k plan to Nabers Group today.