The $1,500 IRS 'Thank You': Why Solo Business Owners Should Act Now for 2025

Let's be honest: when was the last time the IRS sent you a thank-you note?

Never? Yeah, that tracks.

But here's the thing, thanks to SECURE 2.0, there's a little-known tax credit that feels an awful lot like the IRS saying, "Hey, thanks for planning ahead." And if you're a solo business owner, a freelancer, or one half of a power-couple running a business together with no employees, this one's for you.

We're talking about the Automatic Enrollment Credit: a cool $500 per year for three years, totaling $1,500 just for setting up a retirement plan the right way. Add in the ability to make retroactive salary deferrals for 2025 and some juicy enhanced catch-up contributions if you're in your early 60s, and suddenly, starting a qualified retirement plan this year looks like a no-brainer.

Let's break it down.

The Automatic Enrollment Credit: Your $1,500 Bonus

Most of the tax credits that came out of SECURE 2.0 have a catch: you need to have non-highly compensated employees (NHCEs) to qualify. That's great if you've got a team, but if you're flying solo, or it's just you and your spouse, you're technically considered a "highly compensated employee" by default (thanks to that pesky >5% ownership rule).

That means credits like the Startup Credit and the Employer Contribution Credit? Off the table for most solo operators.

But not the Automatic Enrollment Credit.

Here's why this one is different:

• Credit Amount: $500 per year for up to three years = $1,500 total
• Requirement: Your plan must include an automatic enrollment feature (specifically, an Eligible Automatic Contribution Arrangement, or EACA)
• Employee Threshold: You must have had no more than 100 employees in the prior tax year
• The Kicker: There's no requirement to cover a non-highly compensated employee

That last point is huge. It means sole proprietors, single-member LLCs, and spouse-only businesses can actually claim this credit. No hoops. No "but wait, there's more" fine print that disqualifies you.

How to Claim It: You'll use IRS Form 8881, Credit for Small Employer Pension Plan Startup Costs. Your tax professional will thank you for the heads-up.

Retroactive Salary Deferrals: Yes, You Can Still Contribute for 2025

Here's where things get really interesting: and time-sensitive.

Under SECURE 2.0, if you establish a new solo 401(k) plan in 2025, you can make retroactive salary deferral contributions for that first plan year all the way up until your tax filing deadline (without extensions).

Let's say you're reading this in early 2026 and haven't filed your 2025 taxes yet. You could:

1. Start a new retirement plan now
2. Make salary deferral contributions for 2025
3. Reduce your 2025 taxable income
4. Claim the Automatic Enrollment Credit on your return

That's a one-two punch of tax savings that most solo business owners don't even know exists.

But here's the catch: the clock is ticking. Once you file your 2025 return (or the deadline passes), the window closes. So if you've been putting off starting a retirement plan, now is literally the best time to act.

Enhanced Catch-Up Contributions for Ages 60–63

If you're between 60 and 63 years old in 2025, SECURE 2.0 has another gift for you: super-sized catch-up contributions.

For 2025, the standard catch-up contribution limit for those 50 and older is $7,500. But if you're in that 60–63 sweet spot, you can contribute up to $11,250 in catch-up contributions.

Let's do some quick math:

And that's before we talk about employer contributions (which, as a sole proprietor, you also control). With the right plan design, you could be sheltering a significant chunk of your income from taxes while turbocharging your retirement savings.

For the full breakdown of contribution limits for 2025 and 2026, check out our handy reference guide: Annual Contribution Limits for 2026 (PDF).

Why Solo Owners Should Consider Castle Rock PEP

So you're convinced. A retirement plan makes sense. The tax credits are real. The retroactive deferrals are calling your name.

But here's where a lot of solo business owners get stuck: the hassle factor.

Traditional 401(k) plans can be administratively heavy, expensive to maintain, and frankly, designed for bigger companies. That's where a Pooled Employer Plan (PEP) like Castle Rock PEP changes the game.

Here's what makes it different:

• Shared Administrative Burden: Instead of managing everything yourself, you pool resources with other employers. Less paperwork, lower costs.
• Fiduciary Support: As a PEP participant, you share fiduciary responsibilities with the Pooled Plan Provider. That's one less thing keeping you up at night.
• Access to Institutional Pricing: Solo plans often get stuck with retail-level fund fees. In a PEP, you benefit from the buying power of the group.
• Flexibility: Whether you're a one-person show or planning to hire someday, a PEP can grow with you.

Think of it like the co-working space of retirement plans. You get the benefits of a big-company 401(k) without the big-company overhead.

Curious how it works? Check out Why Join a PEP or explore our Plan Designs to see what fits your situation.

The Bottom Line: Don't Leave Money on the Table

Let's recap what's available to you as a solo business owner or spouse-only business in 2025:

✅ $1,500 in tax credits over three years (Automatic Enrollment Credit)

✅ Retroactive salary deferrals for 2025 if you start a new plan before your tax filing deadline

✅ Enhanced catch-up contributions of up to $11,250 if you're 60–63

✅ Significant tax-deferred savings to reduce your current taxable income

✅ A path to retirement security that doesn't require a dedicated HR department

This isn't about complicated tax strategies or loopholes. It's about taking advantage of benefits that Congress specifically designed for small business owners like you. The IRS isn't exactly known for its generosity: so when they offer you $1,500 and a chance to reduce your tax bill, maybe take them up on it.

Ready to Get Started?

If you've been on the fence about starting a retirement plan for your solo business, this is your sign. The combination of tax credits, retroactive deferral opportunities, and enhanced catch-up limits makes 2025 a uniquely advantageous year to act.

And you don't have to figure it out alone.

At Castle Rock PEP, we specialize in making retirement plans accessible, affordable, and (dare we say) easy for small businesses. Whether you're a freelancer, consultant, sole proprietor, or running a family business with your spouse, we've got a solution that fits.

Schedule a PEP Talk to learn how we can help you capture these benefits before the 2025 window closes.

Simplifying retirement for all. One plan. Every business.