If you’re self-employed, you already know the Solo 401(k) is one of the most powerful retirement planning tools out there. It allows you to contribute as both the employer and the employee—building retirement savings quickly while cutting your taxable income.
Now there’s even more good news. Thanks to recent changes in the Secure Act, the IRS is offering a brand-new incentive for self-employed business owners who establish or update their Solo 401(k) plan: a $1,500 tax credit.
What the New Credit Is
Starting in 2025, self-employed individuals can qualify for a tax credit of up to **$500 per year for three consecutive years**—a total of **$1,500**—for adding an **automatic contribution arrangement** to their Solo 401(k) plan.
This applies whether you’re setting up a brand-new plan or updating your existing one.
How It Works
The automatic contribution feature is designed to encourage consistent savings. It sets a default employee deferral—usually around 3%—that’s automatically contributed unless you choose a different amount.
Even though it’s just you contributing to your own Solo 401(k), adding this feature qualifies you for the credit.
The best part? The credit isn’t based on your expenses or plan size. You’ll receive the full $500 credit each year for three years once the feature is in place.
Who Qualifies
This tax credit applies to both new and existing Solo 401(k) plans maintained by self-employed business owners, including single-member LLCs, sole proprietors, and S corporations with no employees.
To qualify, your plan must include or be amended to include an automatic contribution arrangement by December 31, 2025 to claim the first year’s credit.
How to Claim the Credit
You’ll claim this credit using IRS Form 8881 (Credit for Small Employer Pension Plan Startup Costs and Auto-Enrollment).
- Sole proprietors will claim it on Form 3800, and
- S corporations or partnerships will flow it through to their K-1.
This credit is separate from other startup or maintenance credits for retirement plans, so you can claim both if you’re eligible.
Why It Matters
For many self-employed professionals, this credit is essentially free money for doing something that already benefits you—saving for retirement. And since it’s a credit (not a deduction), it directly reduces your tax bill dollar for dollar.
Even if you already have a Solo 401(k), a quick amendment could unlock up to $1,500 in tax savings over the next three years.
This is one of the simplest, most rewarding tax incentives available to solopreneurs right now. If you haven’t reviewed your Solo 401(k) recently, this is the perfect reason to revisit it before year-end.
If you’d like help reviewing your plan or making sure you qualify for the new credit, contact us to discuss your tax strategy.