There's never been a better time for employers to start a new 401(k) plan. Why, you might ask?
Recent retirement legislation has made offering a 401(k) plan more affordable than ever. Thanks to the SECURE 2.0 Act, eligible employers may receive up to $16,500 in tax credits¹ over the plan's first three years to help offset initial plan costs. The Act also introduced the Starter 401(k) plan, a retirement benefit designed to make it easy for businesses to provide employees a way to save for the future.
In this post, we'll break down everything employers need to know about Starter 401(k) plans, including:
What is a Starter 401(k)?
How do Starter 401(k) plans work?
Who is eligible for a Starter 401(k) plan?
What's the difference between a standard and a Starter 401(k) plan?
Read on to learn more and to determine if a Starter 401(k) plan is right for you.
What are Starter 401(k) plans?
Think of a Starter 401(k) plan as a simplified employer-sponsored retirement plan with lower saving limits than a standard 401(k) plan. These plans help employers offer a retirement benefit by addressing two of the most significant barriers when it comes to offering a retirement savings plan: cost and ease of administration.
Starter 401(k) plans were established under the SECURE 2.0 Act, which was signed into law on December 29, 2022 to address the significant need for retirement reform. A 2025 AARP survey shows that 64% of Americans are worried about not having enough money to retire, and roughly one in five adults over 30 say they have nothing saved for retirement.
The SECURE 2.0 Act aims to positively impact these statistics. According to an American Retirement Association report, the Starter 401(k) plan could help up to 19 million American workers participate in a workplace-based retirement plan. The report also estimates a 22% increase in retirement plan access for Black and Hispanic American workers.
How does a Starter 401(k) plan work?
Starter 401(k) plans are exempt from IRS nondiscrimination testing, but the streamlined compliance means there are more strict requirements, including:
Employer contributions are not permitted.
Employee contributions can be no more than $6,000 per year. Like other employer sponsored plans, the IRS may increase this limit each year.
Employees aged 50 or older can contribute an additional $1,100 in catch-up contributions for a total limit of $7,100 in 2026.2
Employers are required to include an automatic enrollment feature with an automatic enrollment rate of at least 3% and no more than 15% of their salary.
Who can open a Starter 401(k)?
Starter 401(k) plans became available as of January 1, 2024. Generally, employers who currently maintain a retirement plan under which current contributions are made are not able to sponsor a Starter 401(k) plan. However, there are a few exceptions:
Businesses that make employee contributions to IRAs through a mandated state-sponsored retirement program can choose to adopt a Starter 401(k).
If a company previously offered a 401(k) plan, but they terminated it and have not offered a retirement plan for at least 12 months, they may be eligible for a Starter 401(k) plan.
Starter 401(k) plan vs. Standard 401(k) plan
From cost to flexibility, there are significant differences between a Starter and standard 401(k) plan that employers should be aware of. You may already be familiar with a standard 401(k) plan, which has significantly higher contribution limits and allows employer contributions.
Starter 401(k) plan | Standard 401(k) plan
| |
Annual participant contribution limit | $6,000 | $24,500 |
Annual participant catch-up contribution limit | $1,100 | $8,000 (50-59, 64+) $11,250 (60-63) |
Employer contribution | Not permitted | Optional |
Auto-enrollment | Required, enrollment rate between 3% and 15% with annual increases to at least 10% but no more than 15% | Optional for plans established before December 29, 2022 Required for plans established after December 28, 2022 enrollment rate between 3% and 15% with annual increases to at least 10% but no more than 15% |
Employers eligible to adopt | Employers with no existing retirement plan | All Employers (except Governmental employers) |
Subject to IRS non-discrimination tests | No | Yes — though some plan designs may automatically satisfy most tests, such as a Safe Harbor 401(k) plan |
Can make both Traditional and Roth employee contributions⁵ | Yes | Yes |
Vesting | Since all contributions are employee deferrals, vesting is always immediately 100% | Certain employer contributions may be subject to a vesting schedule |
Form 5500 reporting | Generally Required | Generally required |
What's the difference between a Starter 401(k) plan and a Safe Harbor 401(k) plan?
There are similar benefits to Starter and Safe Harbor 401(k) plans regarding nondiscrimination compliance tests. But Starter 401(k) plans have more limitations.
Unlike a Safe Harbor 401(k) plan, with a Starter 401(k) plan, employer contributions are not permitted. The contribution limits are also lower with a Starter 401(k) plan than with a Safe Harbor 401(k) plan. The chart below breaks down the differences.
What's the difference between a Starter 401(k) plan and a traditional no-match 401(k) plan?
Starter 401(k) plans have many differences compared to a traditional 401(k) plan, including lower employee contribution and catch-up contribution limits, no employer match contributions, and mandatory automatic enrollment. In order to offer a 401(k) plan without a match feature, you'll be setting up a traditional 401(k) plan, which will be subject to annual non-discrimination tests.4 See the chart below for details.
Starter 401(k) plan | Safe Harbor 401(k) plan | Traditional 401(k) plan
| |
Employee contribution limit | $6,000 | $24,500 | $24,500 |
Catch-up contribution limit ages 50+ | $1,100 | $8,000 (50-59, 64+) $11,250 (60-63) | $8,000 (50-59, 64+) $11,250 (60-63) |
Employer contribution | No | Required, starting at 3.5% match or 3% nonelective | Optional |
Total possible savings (Employee + Employer)² | $6,000 | $72,000; $80,000 with catch up; $83,250 with extended catch up | $72,000; $80,000 with catch up; $83,250 with extended catch up |
No | Optional* | Optional | |
Eligibility service and age requirements | Optional, with limited class exclusions | Optional | Optional |
Automatic enrollment | Required, enrollment rate between 3% and 15% with annual increases to at least 10% but no more than 15% | Optional for plans established before December 29, 2022 Required for plans established after December 28, 2022 enrollment rate between 3% and 15% with annual increases to at least 10% but no more than 15% | Optional for plans established before December 29, 2022 Required for plans established after December 28, 2022 enrollment rate between 3% and 15% with annual increases to at least 10% but no more than 15% |
*Making profit sharing contributions to a safe harbor 401(k) plan will subject the plan to top-heavy testing.
Starter 401(k) plan benefits
Starter 401(k) plans offer employers great advantages, including:
Low cost and simplified administration: A Starter 401(k) plan can be more affordable and easy to administer compared to a standard 401(k) plan. Since they're exempt from IRS nondiscrimination testing, they don't require the same amount of valuable administrative resources as a standard 401(k) plan.
Automatic enrollment: The mandatory automatic enrollment component in Starter 401(k) plans may increase employee participation, since employees are automatically enrolled in the plan if they don't choose to take action to opt out.
Meets state mandate requirements for a business to sponsor/offer a retirement plan: Businesses can choose to offer employees the mandated state-sponsored retirement program, or they can offer their own private 401(k) plan, such as a Starter 401(k) plan.³
Starter 401(k) limitations
While a Starter 401(k) plan may be a good fit for many employers, they pose several limitations, including:
Lower contribution limits: With a Starter 401(k) plan, the annual employee contribution limit is $6,000 (for 2026) with $1,000 in catch up contributions for those 50+, which is significantly lower than the standard 401(k) plan limit. That means employees contribute less tax-advantaged savings for retirement each year.
No employer contributions: Employers are not allowed to contribute to Starter 401(k) plans, even if they'd like to.
No flexible plan design options: Starter 401(k) plans have a one-size-fits-all approach to retirement benefits. They aren't as flexible as standard 401(k)s, which offer elective benefits such as profit sharing, vesting, and expanded eligibility requirements.
Who might a Starter 401(k) plan be a good fit for?
Think your company might benefit from a Starter 401(k) plan? Here are a few reasons why you may choose to consider this new, streamlined retirement savings benefit:
Employers looking for a simple, budget-conscious 401(k) plan solution
Employers wanting to avoid annual nondiscrimination testing
Employers who don't plan on contributing to their employees' retirement savings
If you think a Starter 401(k) plan could be right for your business, Gusto Retirement can help you give your employees a road to retirement.⁴
FAQs
What is a Starter 401(k) plan?
A Starter 401(k) is a simplified, employer-sponsored retirement plan introduced by the SECURE 2.0 Act of 2022. It's designed for businesses that don't currently offer any retirement plan, offering a lower-cost, easy-to-administer alternative to a standard 401(k). The trade-off is lower contribution limits ($6,000/year vs. $24,500 for a standard 401(k)) and no employer contributions.
Who is eligible to offer a Starter 401(k)?
Employers who do not currently maintain any active retirement plan are eligible. There are two exceptions: businesses already contributing to employee IRAs through a state-sponsored mandate program can still adopt a Starter 401(k), and companies that previously had a 401(k) but terminated it at least 12 months ago may also qualify.
What are the contribution limits for a Starter 401(k) in 2026?
Employees can contribute up to $6,000 per year. Employees aged 50 or older can make an additional $1,100 catch-up contribution for a total of $7,100. These limits may be adjusted annually by the IRS. Note that employer contributions are not permitted under a Starter 401(k).
What's the key difference between a Starter 401(k) and a standard 401(k)?
The biggest differences are contribution limits and employer contributions. A standard 401(k) allows employees to contribute up to $24,500 (in 2026) and employers can optionally add a match or profit sharing. A Starter 401(k) caps employee contributions at $6,000 and prohibits employer contributions entirely. The upside: Starter 401(k) plans are exempt from IRS nondiscrimination testing, making them simpler and cheaper to administer.
Does a Starter 401(k) satisfy state retirement mandate requirements?
Yes. Employers can satisfy state-sponsored retirement mandate requirements by offering a Starter 401(k) instead of enrolling employees in the state program. This gives employers more control over their retirement offering while still meeting their legal obligations.
Disclosures
¹ This content is for informational purposes only and is not intended to be taken as tax advice. You should consult a tax professional to determine what types of tax credits or deductions your company is eligible to claim.
² Starter 401(k) and Standard 401(k) annual limits may be adjusted annually by the IRS to account for cost-of-living changes. Learn more.
³ This information is general in nature and is for informational purposes only. It should not be used as a substitute for specific tax, legal and/or financial advice that considers all relevant facts and circumstances. Deadlines, fees, and other program details are subject to change by the state without notice and should be checked prior to making any decisions.
⁴ Please note, under current IRS rules, Starter 401(k) plans can only be converted to full 401(k) plans effective the first day of the plan year. This would require you changing to the Core or Enterprise tier at the beginning of a calendar year.
⁵ Roth contributions are always distributed tax-free. Earnings on Roth contributions are distributed tax-free if the following conditions are met: (a) you're either over age 59 ½, disabled, or have died AND (b) it has been 5 years since your first Roth contribution under the current plan. Please consult a qualified financial advisor or tax professional to determine what is applicable to your financial situation.
