Starter 401(k)

What a starter 401(k) is

Starter 401(k) plans have been available for plan years beginning after December 31, 2023. The employer must not maintain another qualified plan in the same year. Every eligible employee is enrolled automatically at 3% to 15% of pay unless they opt out, and only employee deferrals are allowed. A plan that meets these terms is treated as passing the ADP test and is exempt from the top-heavy rules.

Why it matters to employers

It is a low-effort way to offer a 401(k), and to satisfy a state mandate, without committing to employer contributions. The cost is a low ceiling: employees can defer far less than in a standard 401(k), and there is no match. Owners who want to save more than the starter limit need a standard or safe harbor plan.

Example with 2026 figures

In 2026 an employee in a starter 401(k) can defer up to $6,000, plus $1,100 if age 50 or older. In a standard 401(k) the same person could defer $24,500, plus an $8,000 catch-up at 50 or older, and could receive employer contributions.

For 2027 the limit rises to $6,500, plus $1,100 at age 50 or older. (IRS Notice 2026-66)

Common mistakes

• Making employer contributions. A starter 401(k) cannot accept a match or profit sharing.

• Maintaining another qualified plan in the same year.

• Choosing it when the owners want to defer more than $6,000 a year.