Employee Retirement Plan Coverage: 2026 Options and Credits
If your business has employees, or soon will, now is a good time to review your retirement plan options for 2026.
Check If Your State Requires a Plan
Fifteen states now require employers to either sponsor a qualifying plan or enroll workers in a state-run program. California and Oregon apply the rule to employers with just one W-2 employee. Penalties commonly run $100 to $250 per employee per year.
The rules follow where your employees work, so a single remote hire can trigger the obligation. Even if you already have a plan, you may need to register your exemption on the state portal to avoid penalty notices.
A Good Plan Does Not Require a Big Company
Options range from a basic SEP-IRA or SIMPLE IRA to a safe-harbor 401(k) with profit sharing, which allows up to $72,000 per participant in 2026. Standard features such as Social Security integration and cross-testing can direct more of the employer contribution to owners.
A cash balance (defined benefit) plan can produce much larger deductions for owners who are older than their staff.
Federal Tax Credits Can Cover Much of the Cost of a New Plan
Small employers that begin new plans may claim credits for startup and administration costs as well as employer contributions. There’s also a tax credit for all plans that add automatic enrollment.
If you operate as an S corporation, remember that you base your contributions on your W-2 wages, not distributions. A low salary saves payroll tax but also caps what you can save for retirement.
If you want to discuss retirement plans, please call me directly at 408-778-9651.
By Leon Clinton