Retirement plan startup tax credits for Washington employers
By Dustin Metcalf, CRPC® · Updated October 7, 2026
The three credits
| Credit | How much | How long |
|---|---|---|
| Startup cost credit | 100% of eligible costs for businesses with up to 50 employees (50% for 51–100), up to $5,000 a year. The cap is the greater of $500 or $250 per eligible non-highly-compensated employee, up to $5,000. | First 3 years |
| Employer contribution credit | Up to $1,000 per eligible employee toward what the business contributes, for employees earning up to about $100,000 (indexed). Employees' own payroll deferrals don't count. Reduced for businesses with 51–100 employees. | 5 years: 100%, 100%, 75%, 50%, 25% |
| Auto-enrollment credit | $500 a year for adding automatic enrollment to a 401(k) or SIMPLE IRA | 3 years |
Credits are claimed on IRS Form 8881. Eligibility rules apply, including having at least one non-highly-compensated employee and not having had a plan for the same employees in the prior three years. Costs covered by a credit can't also be deducted. Ask your tax professional how they apply to you.
A hypothetical example
A Washington business with 8 employees starts a 401(k) with $2,000 a year in eligible setup and administration costs and contributes $1,200 per employee. With 50 or fewer employees, the startup credit could cover the full $2,000 in each of the first three years. The contribution credit could cover up to $1,000 per eligible employee in years one and two, then phase down. Actual results depend on your costs, payroll and eligibility.
Why it matters for Washington Saves
Washington Saves has no employer fees, which makes it look like the cheapest option. These credits can make your own plan close to free for the first few years, while also allowing employer contributions and higher savings limits for you and your team. The credits only begin once a plan is in place.
Frequently asked questions
Does Washington Saves qualify for the SECURE 2.0 tax credit?
No. The startup and employer contribution credits apply to plans an employer establishes, such as a SEP IRA, SIMPLE IRA or 401(k), not to the state's Washington Saves program.
How much is the retirement plan startup tax credit?
For businesses with 50 or fewer employees, 100% of eligible startup and administration costs, up to $5,000 a year, for the first three years. Businesses with 51–100 employees can claim 50%.
What form do I use to claim the credit?
IRS Form 8881, Credit for Small Employer Pension Plan Startup Costs, Auto-Enrollment, and Military Spouse Participation.
Is there a credit for employer contributions?
Yes. Up to $1,000 per eligible employee earning up to about $100,000 (indexed), at 100% in years one and two, then 75%, 50% and 25%. It's reduced for businesses with 51–100 employees.
Want this worked out for your business?
Book a free intro call with Dustin. We'll compare Washington Saves with a plan of your own, including estimated cost after tax credits and what you could save for yourself. If Washington Saves is the best fit, we'll tell you.