401(k) Tax Credits Small Employers Still Underuse in 2026: Why a 401(k) Beats CalSavers

Do I have to offer something?

In most cases, yes. CalSavers says employers that averaged at least one California-based employee age 18 or older in the prior year, and that do not sponsor a qualified retirement plan, must register for CalSavers. Employers that already sponsor a qualified plan, like a 401(k), are exempt but still need to report the exemption through CalSavers. Each year, newly mandated employers have until December 31 of the year they get their notice. If your deadline already passed, CalSavers says to register right away. Penalties after notice are $250 per eligible employee at 90 days and another $500 per eligible employee at 180 days (CalSavers).

So the real question is not whether to do something. It is which option fits your business.

What are the 401(k) tax credits for small employers in 2026?

Under the SECURE 2.0 Act of 2022, the Internal Revenue Service (IRS) lists three credits that may apply when a small employer starts a plan (IRS):

• Startup cost credit. For employers with 100 or fewer employees who earned at least $5,000 the prior year, and at least one non-highly compensated employee in the plan. Employers with 50 or fewer such employees can claim 100% of eligible startup costs, and employers with 51 to 100 can claim 50%. The yearly cap is the greater of $500 or $250 per eligible non-highly compensated employee, up to $5,000, for three years. You can't deduct the same costs you claim for the credit.
• Employer contribution credit. Up to $1,000 per employee in the first two plan years, then phasing down over years three through five. It is reduced for employers with 51 to 100 employees and does not apply to contributions for employees earning over $100,000, a threshold the IRS adjusts for inflation.
• Auto-enrollment credit. $500 per year for three years if the plan automatically enrolls employees.

There are also eligibility exclusions, for example if you recently sponsored another plan covering substantially the same employees. In my experience, a lot of small employers never hear about these credits. They are not the whole reason to offer a plan, but they can make the first years easier to take on. These credits are tied to an employer-sponsored plan. Registering for CalSavers is not a plan you sponsor, so they don't apply to it. I don't give tax advice, so confirm the details with your tax advisor.

What is CalSavers, and who is it for?

CalSavers is California's state-run retirement savings program for employees whose employers don't offer a plan. Employees save through payroll deductions into an individual retirement account (IRA).

It is a simple way to meet the requirement, and I won't pretend otherwise. But it is a single program built for everyone. You join it. You don't shape it. If you want a retirement benefit that reflects your team and your business, a state program isn't built to do that.

Watch the What is CalSavers video (2 min 6 sec) in our video library.

Is a 401(k) better than CalSavers for a small employer?

For most small employers, yes. A 401(k) is a plan you design, and CalSavers is a program you join. Here is how they compare:

• Employees can save more. For 2026, the IRS limit for employee 401(k) deferrals is $24,500, plus an $8,000 catch-up at age 50 or older, or $11,250 for ages 60 to 63. The 2026 IRA limit, which applies to CalSavers accounts, is $7,500, plus a $1,100 catch-up at 50 or older (IRS).
• You control the plan. With a 401(k), you decide how the plan works and what it offers your people. With CalSavers, everyone gets the same structure.
• You have a choice in who runs it. With a 401(k), you choose the provider and the advisor you work with. CalSavers is run by the state.
• You can add an employer contribution if you choose. A 401(k) lets you match or contribute if you want to. CalSavers is built around employee payroll savings, not employer contributions.
• Tax credits may be available. Depending on your group, starting a 401(k) may qualify you for the credits above.
• It helps with hiring and keeping people. In my experience, employees notice when an employer offers a real retirement plan.

CalSavers meets the requirement. A 401(k) is a benefit you can build on.

Is a 401(k) worth it for a small group in California?

For most small groups I talk to, yes. If you have employees, you're already competing for them, and a retirement plan is one of the things people ask about. Cost and setup are what stop most employers, and that's usually where I can help.

I'd rather you hear the options from me than guess. A short call usually tells us quickly how a 401(k) would look for your group.

What should a small employer do next?

1. Check whether you have a CalSavers notice or a past deadline.
2. Decide whether you want a plan you can shape or a program you join.
3. Ask a tax advisor whether you may qualify for the startup, contribution, or auto-enrollment credits.
4. Call me at 888-954-8999 or use the contact form, and I'll walk you through the options for your group.

Are there any questions I can answer for you?

Want to see what a 401(k) could look like for your group? Call Nelson Pillow directly at 888-954-8999 or use the contact form.

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