401(k) Tax Credits for Small Businesses



Starting and administering a 401(k) retirement plan can be a daunting challenge for small businesses. Tax credits can help. If you’ve previously begun a plan, you may even be eligible for tax credits now. Here’s what you need to know.

Add It Up: Support for Start-up Costs

The Retirement Advantage reminds us that there are tax credits available to help with the start-up costs of qualified retirement plans, including 401(k) plans. Credit can be claimed for costs associated with setting up and administering the plan and educating employees about the plan. Notably:

The credit is part of the general business credit, which can be carried back or forward to other tax years if it cannot be used in the current year; however, it cannot be carried back to a tax year beginning before January 1, 2002.

 According to the IRS, the credit is 50% of eligible startup costs, with a maximum of $5,000. Further eligibility details and instructions for filing Form 8881 are available at the IRS.  Don’t forget to check out the additional new credit for “small employer automatic enrollment in retirement savings.” Part of 2020s Further Consolidated Appropriations Act, the IRS says this new credit:

 Is $500 for the first tax year that an eligible employer first includes an eligible automatic contribution arrangement (under section 414(w)(3)) in an eligible employer plan. The credit is $500 for each of the following 2 tax years, provided that you continue to maintain the arrangement at any time during the applicable tax year. 

 Employing, Saving and Protecting Too

 The Small Business Administration estimates that there are 31.7 million small businesses in the United States, employing over 60 million people. Businesses with 20-99 employees make up the largest share of all small businesses.


Clearly, there’s nothing small about the role of small businesses in our economy—or the importance of the retirement savings of their owners and employees.  That’s why the work of sponsoring a 401(k) plan in a small business is vitally important. Plan sponsors deserve all the help they can get!

Colonial Surety Company proudly offers a specially tailored protection package to plan sponsors across the country.  With this affordable package, plan sponsors receive:


  • The  ERISA bond required to protect the assets of the retirement plan from theft; 


  • Fiduciary Liability coverage to protect you and your assets from personal liability;


  • Cyber Liability coverage to protect your company and plan from covered losses and expenses in the event of a cyber breach.

With Colonial, you can easily and quickly secure this comprehensive coverage package today: Complete and Affordable Plan Sponsor Protection Package.

Nationally Recognized

In addition to tax incentives, 401(k) plans provide small businesses with a range of other benefits. For example, business experts report that retirement plans help small businesses recruit and retain top talent. Who doesn’t want to be associated with the best?

Colonial Surety Company is a leading national and direct provider of ERISA  Fidelity Bonds. We are rated “A Excellent” by A.M. Best Company, U.S. Treasury listed and in business all across the country.

Founded in 1930, Colonial uses our experience—plus technology—to give small businesses easy, direct and affordable access to the same kinds of protections big corporations have. We excel at packaging products that make it simpler and faster for businesses to quickly access the protections they need. Oh, yeah—and we are here for You!

Plan Sponsor Protection Packages Here!