Most business owners know about tax deductions. But there’s a tax credit hiding inside a retirement strategy that many business owners may be overlooking.

It’s called the eligible automatic contribution arrangement, or EACA, tax credit.

If you have an eligible retirement account, this 401(k) or Solo 401(k) tax credit could give your sponsoring business $500 per year for up to three years. That’s potentially $1,500 applied directly against taxes you owe.

And that distinction matters.

A deduction reduces taxable income. A tax credit directly reduces your tax liability.

Small business tax strategies aren’t limited to deductions. You also need to know which credits may already be available to your business.

In this article, I’ll break down how the EACA tax credit works, how it applies to a Solo 401(k), and how an existing retirement plan may qualify.

Key Takeaways

• The EACA tax credit can provide $500 per year for up to three years, for a potential total of $1,500.
• This is a tax credit, not a tax deduction, so it directly reduces how much you may owe in taxes and can create tax savings for your business. 
• The credit applies to qualifying 401(k) and Solo 401(k) plans.
• Business owners with an existing Solo 401(k) may be able to amend their plan documents to include the required EACA language.
• Your plan must provide for an automatic contribution of at least 3% of compensation, although you can opt out of making that contribution.
• The business sponsoring the retirement plan claims the credit.
• Sole proprietorships, S corporations, and partnerships can sponsor the plan, with the credit from an S corporation or partnership flowing through on the K-1. 
• A Solo 401(k) can offer benefits that go well beyond this $500 credit, including the opportunity to put significantly more money toward retirement.

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What Is the EACA Tax Credit?

EACA stands for an eligible automatic contribution arrangement. It’s an auto-enrollment provision you can include in an eligible retirement plan. 

If you have an eligible retirement plan and put the appropriate automatic contribution arrangement in place, your sponsoring business can receive a $500 tax credit per tax year for up to three years.

That gives you the opportunity to claim:

Year 1: $500
Year 2: $500
Year 3: $500

That’s potentially $1,500 in tax credits.

And I want to emphasize the word credit.

We’re not talking about another deduction.

We’re talking about money that directly reduces how much you may owe in taxes.

If your construction company, real estate development business, or another business sponsors the qualifying retirement plan, that sponsoring entity claims the tax advantage.

That’s what makes this one of the tax credits for small business owners worth knowing about.

What’s the Difference Between a Tax Credit and a Tax Deduction?

A tax credit reduces the taxes you owe dollar for dollar. Business expenses may give you deductions that reduce your taxable income, but a credit goes directly against your tax bill. The value of a deduction can depend on your tax bracket, while the EACA credit applies directly against the tax you owe.

That’s why the EACA tax credit can be valuable. Think of it like having $500 to apply directly against your tax bill.

There is one important limitation: this isn’t a refundable tax credit. If you don’t owe taxes, it won’t increase your refund, and you can’t carry the unused credit forward.

You have a three-year period after putting the arrangement in place to claim the available credit, so you should consider it as part of a larger tax plan for small business owners.

Which Retirement Plans Qualify for the EACA Tax Credit?

For many small business owners, the Solo 401(k) is particularly relevant. A Solo 401(k) is a retirement plan sponsored by a business you own when it’s just you—or you and your spouse—in the business rather than a business with employees. That makes it an option for self-employed individuals, including sole proprietors, who own a business without employees. 

If your business has employees, you may instead have a traditional 401(k), SIMPLE IRA, or another type of retirement plan.

And there’s an important distinction with tax credits. Startup cost credits associated with traditional 401(k) plans aren’t available to Solo 401(k)s. The EACA tax credit provides a different opportunity for Solo 401(k) owners.

Can an Existing Solo 401(k) Qualify for the Credit?

Yes, an existing Solo 401(k) can qualify for the EACA tax credit if you amend the plan documents to include the appropriate EACA language.

That language essentially provides that you’ll automatically contribute at least 3% of your compensation to the plan each year.

So you don’t necessarily need to establish a brand-new Solo 401(k) to take advantage of this strategy. If you’ve had a plan for years, you may simply need to amend it to include the required language.

Do You Actually Have to Make a 3% Contribution?

No, you don’t have to make the 3% contribution. You need the automatic contribution language in your plan, but you can opt out of making the contribution.

In other words, your plan provides for an automatic contribution of at least 3% of your compensation unless you choose to opt out.

This can matter if you’re starting a business and haven’t yet started taking a salary. Even if you aren’t making money or taking compensation, you can still include the required language in the plan and opt out of the automatic contribution.

The key is having the appropriate EACA language in your plan.

Why Should Small Business Owners Consider a Solo 401(k)?

The $500 credit gets your attention, but the Solo 401(k) itself can create a much larger opportunity.

For 2026, you can put approximately $24,500 into the plan as an employee. Your business can also make an employer contribution based on your salary, bringing total contributions up to $72,000. 

If you’re old enough to qualify for catch-up contributions, you may be able to contribute even more.

That’s where this becomes much more than a discussion about getting $500 back.

You’re creating a retirement plan through your own business while potentially receiving a tax credit for putting the right arrangement in place.

That’s the kind of opportunity I want business owners to look for when considering their tax strategy.

Don’t look at one provision in isolation.

Look at how your business, retirement plan, income, and taxes can work together.

Can a Solo 401(k) Have a Roth Component?

Yes, your Solo 401(k) can have a Roth component and still qualify for the EACA tax credit.

That’s different from simply having a Roth IRA. The key is having a Solo 401(k) with the appropriate EACA provision.

So if you’re interested in Roth contributions, that doesn’t necessarily put this tax credit out of reach.

Can You Roll an Existing IRA Into a Solo 401(k)?

Yes, you can roll an existing IRA into a Solo 401(k) sponsored by your business.

For example, suppose you have $100,000 in an IRA that you rolled over from a previous employer’s retirement plan. If you establish a business with a Solo 401(k), you can roll that $100,000 into the new plan.

This allows you to move those existing retirement assets into the Solo 401(k) sponsored by your own business.

Is the EACA Tax Credit Only for New Plans?

No, the EACA tax credit isn’t limited to new plans. You can use the credit with a new plan or amend an existing Solo 401(k) to add the EACA language.

Once you put the provision in place, you can receive the $500 credit each year for 3 years.

So if you didn’t make the change previously, that doesn’t necessarily mean you’ve lost the opportunity. You can still look at adding the provision to your existing plan.

Can an S-Corporation or Partnership Use This Strategy?

Yes, an S-Corporation or partnership can sponsor the retirement plan and use this strategy.

If you’re the owner, the tax credit can then flow down to you through the K-1.

The business sponsoring your plan matters. When you’re looking at tax planning for small business owners, consider how your entity, compensation, retirement plan, and available tax credits fit together.

Why Was This Tax Credit Created?

SECURE 2.0 created the EACA opportunity in 2022, and the specific provision took effect in 2025.

Here’s what makes it worth your attention: the government is essentially paying you to put the right retirement plan provision in place.

Add the appropriate automatic contribution arrangement, and your business may qualify for a $500 tax credit each year for three years.

And if you already have a Solo 401(k), you don’t necessarily need to start over. You may simply need to amend your existing plan to include the EACA language and unlock the credit.

Don’t Stop at the $500 Tax Credit

The EACA credit could put up to $1,500 back against your tax bill, but the bigger opportunity is finding out what your business may be leaving on the table.

A Solo 401(k) may allow you to put tens of thousands of dollars toward retirement, include a Roth component, move existing retirement money into the plan, and potentially qualify your business for this tax credit.

If you’re wondering whether a Solo 401(k) makes sense for your business—or whether your existing plan could qualify for the EACA credit—work with a tax professional or schedule a complimentary Strategy Session with an Anderson Advisor.

We’ll look at your situation and help you determine whether this strategy is appropriate for you.

Frequently Asked Questions

What Is an Eligible Automatic Contribution Arrangement (EACA)?

An EACA is the provision discussed in this strategy that automatically contributes at least 3% of compensation to the retirement plan unless you opt out. Including the appropriate EACA language in an eligible plan can allow the sponsoring business to qualify for the $500 tax credit.

Can a SEP IRA Qualify for the EACA Tax Credit?

No. The EACA tax credit applies to 401(k) and Solo 401(k) plans, not to SEP IRAs.

Is the EACA Tax Credit the Same as the 401(k) Startup Cost Credit?

No. The startup cost credit and the EACA tax credit are different. The startup cost credit is available to traditional 401(k) plans but not Solo 401(k)s. The EACA credit provides a separate opportunity for Solo 401(k) owners.

What is the 2026 Solo 401(k) Contribution Limit?

In 2026, you can contribute up to $24,500 as an employee, while total contributions can reach $72,000. If you’re eligible for catch-up contributions, you may be able to put away even more.

Who Actually Claims the EACA Tax Credit?

The business entity that sponsors the retirement plan claims the EACA tax credit. For example, that could be your construction company, real estate development company, or another business sponsoring your Solo 401(k).

What Happens if My Business Isn’t Paying Me a Salary Yet?

You can still include the required EACA language in your plan even if your business isn’t currently paying you a salary. As Savannah explains, you can opt out of making the automatic contribution. The key is having the required language in the plan.