The Eligible Automatic Contribution Arrangements (EACA) is a small business tax credit offering $1,500 in tax credits to anyone with a Solo 401k Plan with auto-contributions enabled. This means that you can set up a Solo 401k Plan with Carry, with auto-contributions enabled, and receive $500/year in tax credits for the first 3 plan years. Existing users of Carry’s Solo 401k Plan can also receive the credit by amending their plans to have auto-contributions enabled.

How it works

  • To start receiving the tax credit for the 2023 tax year, sign up for a Solo 401k Plan with Carry here before December 31, 2023.
  • During the signup process, Carry will ask if you want to have auto-contributions turned on to be eligible for the EACA credit. Select Yes.
  • 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 at all by making an election by December 31, 2023 (explained further below).
  • Make sure to claim the credit when you file your taxes, by filing Form 8881

Who is eligible to receive the tax credit?

New and existing users of a Solo 401k plan are eligible to receive a $1,500 tax credit (credited as $500/year for the first 3 plan years) if they have auto-contributions enabled.

What are auto-contributions?

Solo 401k Plans with auto-contributions have a default 3% contribution percentage. By enabling auto-contributions, you’re agreeing to contribute 3% of your employee compensation into your Solo 401k Plan. As long as this feature is included in your Solo 401k plan, you’re eligible for the tax credit. The 3% auto-contribution can then be overridden by making a Solo 401k election, and you’ll still receive the full tax credits.

What is a Solo 401k election?

A Solo 401k election is simply a written form or document for how much in employee contributions you want to make, and to which accounts it should go towards (pre-tax or Roth). Since you are the employer and employee, you’re essentially writing a signed, dated note to yourself on the amounts you are going to contribute as an employee, and keeping it on file yourself for your own records, in case the IRS ever asks for it.

The Carry web application includes an electronic contribution election form, which you can download and print as well.

Learn more about making an election here.

Why do I need to make an election?

Without an election, you’re locked into contributing exactly 3% of your compensation as an employee and you can face taxes and penalties if you under-contribute or over-contribute.

Making an election yourself allows you to override the 3% auto-contribution and gives you more flexibility in how much you contribute into your plan.

With a Solo 401k, you’re technically allowed to contribute up to 100% of your compensation as an employee, up to a maximum of:

  • $22,500 if you’re under 50 years of age by December 31, 2023.
  • $30,000 (with $7,500 added in catch-up contributions) if you’re at least 50 years of age by December 31, 2023.

(Note that this doesn’t include optional after-tax contributions, which are typically used for mega backdoor Roth and can go higher.)

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

What is a tax credit?

A tax credit is a dollar for dollar reduction in the amount of federal taxes you owe. It’s better than a tax deduction, which only reduces your total taxable income, saving you only a percentage of the expense you’re claiming. A $500 tax credit reduces your tax liability by $500.

Tax credits can also be claimed for taxes paid in past years, or carried forward.

Does this mean I can sign up to the Carry Solo 401k Plan for free?

Essentially, yes. The Carry Solo 401k Plan is available on both the Carry Basic Plan ($299/year) and Carry Pro Plan ($499/year). While you’ll still have to pay out of pocket when you sign up with Carry, you’ll receive $500/year in tax credits from the government for a 3-year taxable period.

If I join Carry Basic for $299, will I only get $299 in tax credits?

No, the tax credit is not limited to how much you pay for your Solo 401k Plan. If you join Carry Basic for $299, you’ll still receive $500/year in tax credits for the first 3 plan years.

How do I receive the tax credit?

You’ll need to have an eligible plan, and file Form 8881.

  • For new users, we’ve made it easy to set up an eligible plan from the start. During your account setup, Carry will ask you if you want to enable auto-contributions in order to be eligible for the EACA credit. Select YES.
  • For existing users, we’ll reach out to you to see if you’d like to have your plan amended. Plans must be amended by December 31, 2023 in order to start receiving the credit for the 2023 tax year; existing plans are eligible for credits for three years.

At tax time, you’ll need to file Form 8881, Credit for Small Employer Pension Plan Startup Costs with your tax return to claim the credit.

Why is the government offering this?

Beginning in 2025, most 401k plans must have the auto-contribution feature. The Eligible Automatic Contribution Arrangements (EACA) credit is being offered as part of the 2022 SECURE 2.0 Act to encourage small businesses to start adopting this feature into their 401k plans.

What if I have a Solo 401k with a provider that doesn’t have an auto-contribution feature?

You can have your plan restated by a provider that supports it (like Carry) and then enable auto-contributions, by December 31, 2023.

Start your Solo 401k Plan

To start receiving $500/year in tax credits for the 2023 tax year, your plan must be set up by December 31, 2023. It takes just 10 minutes to set up your plan with Carry. Click the button below to get started.