Best-kept secret: Streamlined 401(k)s for small firms (under 100 employees)

If you haven’t heard about the nifty small-business 401(k), it’s because the IRS had been virtually mute about it when it first became available in 2024 under the 2023 Secure 2.0 Act.

Now the IRS is aggressively publicizing it. 

Known as the “starter 401(k) deferral-only arrangement,” or “starter 401(k) plan,” its appeal is growing because of increased anxiety about whether Social Security benefits will be there at retirement. 

Under a starter 401(k) plan, each eligible employee is automatically treated as having opted to make elective contributions of at least 3% and not more than 15% of their compensation, as determined by the employer. 

Employers that opt to make matching contributions to starter 401(k)s can set the maximum employer/ AIPB advanced online courses •  Instructor led •  Self-paced employee contribution as low as $6,000 a year—for those over 50 years of age, catch-up contributions of up to $1,000 a year, as indexed, are permitted. 

Employer benefits include: 

a 3-year, start-up tax credit of up to $5,000 to offset startup costs for a company that has fewer than 100 employees; no required employer contributions; minimal ongoing documentation and notifications; and no annual nondiscrimination audit. Even though starter 401(k)s have a nondiscrimination requirement that prohibits offering them only to highly paid employees, unlike regular 401(k)s, the employer does not have to undergo costly, time-consuming annual nondiscrimination audits.