What Are the SIMPLE Plan Contribution Deadlines?
Learn the distinct timing rules for employee and employer SIMPLE plan contributions and the steps to take if a deposit is made late.
A Savings Incentive Match Plan for Employees, or SIMPLE plan, offers a straightforward way for small businesses to provide a retirement benefit with reduced administrative burdens. To maintain the plan’s tax-advantaged status, employers must follow specific rules for depositing contributions. The deadlines differ based on whether the funds are from an employee or the employer, and separate rules apply when establishing a plan for the first time. Adhering to these dates is necessary to avoid potential penalties from the Internal Revenue Service (IRS) and the Department of Labor (DOL).
Employee Salary Deferral Deadlines
The timeline for depositing employee contributions, known as salary deferrals, is strict because these funds are considered plan assets the moment they can be reasonably separated from the employer’s general assets. The Department of Labor (DOL) oversees this rule and provides a safe harbor for small businesses with fewer than 100 participants. Under this safe harbor, depositing employee deferrals within seven business days of the payday when they were withheld is considered timely.
While the seven-day safe harbor is a guideline, the absolute final deadline set by the IRS is different. An employer must deposit employee salary deferrals no later than the 30th day of the month following the month the wages were paid. For example, if an employee’s deferral is withheld from their September paycheck, the employer must deposit that amount into the employee’s SIMPLE IRA by October 30th. Consistently depositing funds within a few days of each payroll run is a best practice to ensure compliance.
Employer Contribution Deadlines
The deadline for an employer to make its contributions is more flexible than the one for employee deferrals. Employer contributions can be either a matching contribution, typically dollar-for-dollar up to 3% of an employee’s compensation, or a non-elective contribution of a fixed 2% of compensation for all eligible employees. The choice between these two contribution types is made annually.
Regardless of which contribution structure an employer chooses, the deadline for depositing these funds is the due date of the employer’s federal income tax return for the year. This deadline automatically includes any filed extensions. For instance, a sole proprietorship that files personal taxes has a deadline of April 15, but if that owner files an extension, the contribution deadline extends to October 15. An employer can choose to make contributions with each payroll, periodically throughout the year, or as a single lump sum before the tax filing deadline.
Plan Establishment Deadline
For a business that does not currently have a retirement plan, the deadline to establish a new SIMPLE IRA plan for the current year is October 1. This means all necessary paperwork, such as adopting a plan document like IRS Form 5305-SIMPLE, must be completed by this date.
An important exception to the October 1 deadline exists for new businesses. If a company is formed after October 1, it can establish a SIMPLE IRA plan as soon as administratively feasible after its formation date. This provision allows new ventures that start late in the year to still offer a retirement benefit to their employees without having to wait until the next calendar year.
Actions for Late Contributions
Missing a contribution deadline requires prompt action to correct the error through the IRS’s Employee Plans Compliance Resolution System (EPCRS). Recent changes from the SECURE 2.0 Act have expanded self-correction options, making it easier for employers to fix certain mistakes without formal submissions or fees.
The first step is to contribute the missed funds as soon as the error is discovered. The employer must also contribute any earnings the funds would have accrued if deposited on time. The DOL provides an online calculator to help determine this amount of lost earnings.
For minor errors, the Self-Correction Program (SCP) allows an employer to fix mistakes without notifying the IRS. For more significant failures, an employer might use the Voluntary Correction Program (VCP), which involves a formal application to the IRS and payment of a user fee.
Failing to correct a late deposit can be treated as a prohibited transaction. This may trigger a 15% excise tax on the late amount, filed using Form 5330.