SIMPLE IRA contribution deadlines split into two very different clocks. Money you withhold from an employee’s paycheck must reach their SIMPLE IRA within 30 calendar days after the end of the month it was withheld, and small employers should aim for 7 business days. Your own matching or nonelective contribution as the employer can wait until the due date of your federal income tax return, including extensions. Confusing the two is the most common way employers land in trouble with the plan.
When Employee Salary Deferrals Must Be Deposited
The moment you deduct a deferral from an employee’s paycheck, that money is a plan asset. The Department of Labor requires you to move it into the employee’s SIMPLE IRA as soon as you can reasonably separate it from your general business funds.1U.S. Department of Labor. ERISA Fiduciary Advisor – What Are the Fiduciary Responsibilities Regarding Employee Contributions
SIMPLE IRAs have their own outer limit that differs from 401(k) plans. Where a 401(k) must deposit deferrals no later than the 15th business day of the following month, a SIMPLE IRA gets until the 30th calendar day following the month in which the amounts would otherwise have been paid to the employee.2eCFR. 29 CFR 2510.3-102 – Definition of Plan Assets – Participant Contributions A deferral withheld from October pay must land in the employee’s account by November 30 at the absolute latest.
That 30-day window is a ceiling, not a target. The DOL is clear that if you can make deposits sooner, you are required to do so.1U.S. Department of Labor. ERISA Fiduciary Advisor – What Are the Fiduciary Responsibilities Regarding Employee Contributions Routinely waiting until day 29 when your payroll system could process deposits in three is itself a compliance failure.
The 7-Business-Day Safe Harbor for Small Employers
Plans with fewer than 100 participants at the start of the plan year qualify for an optional safe harbor. Deposit deferrals within seven business days of the payroll date and the DOL treats the deposit as timely. The safe harbor works deposit by deposit, so missing it once doesn’t disqualify you from using it on the next payroll.2eCFR. 29 CFR 2510.3-102 – Definition of Plan Assets – Participant Contributions
If you miss the seven-day window, the general “as soon as reasonably possible” standard still applies. The clock runs from the earliest practical date, not from the end of the safe harbor period. For most small employers, seven business days is the practical benchmark to build your payroll process around.
When Employer Matching and Nonelective Contributions Are Due
Your contribution as the employer runs on a completely different timeline. Whether you’re making a dollar-for-dollar match up to 3% of pay or a flat 2% nonelective contribution for every eligible employee, you have until the due date of your federal income tax return for that year, including extensions, to deposit it.3Internal Revenue Service. SIMPLE IRA Tips for the Sole Proprietor
For a calendar-year business, that means April 15 of the following year, or October 15 if you file an extension. This extended timeline only applies to the employer contribution. It does not buy you any extra time for depositing employee deferrals, which remain on the 30-day (or 7-business-day) schedule regardless of when your tax return is due.
Plan Setup and Annual Notice Deadlines
Before any deposits can happen, the plan itself has to exist. An existing business must adopt a SIMPLE IRA by October 1 of the year the plan is to take effect, with an effective date landing anywhere from January 1 through October 1.4Internal Revenue Service. Retirement Plans FAQs Regarding SIMPLE IRA Plans A business that came into existence after October 1 gets an exception: set the plan up as soon as administratively feasible.
Each year, you also owe every eligible employee a written notice before the 60-day election period, which generally runs November 2 through December 31 for the following calendar year.5Internal Revenue Service. SIMPLE IRA Plan The notice must tell employees they can start or change a deferral election, whether you’ll be matching or making the nonelective contribution for the coming year, and include the plan’s summary description.4Internal Revenue Service. Retirement Plans FAQs Regarding SIMPLE IRA Plans If you set the plan up mid-year, or an employee becomes eligible after January 1, the 60-day window shifts accordingly.
Penalties for Missing the Deferral Deadline
A late deposit of employee deferrals is classified as a prohibited transaction. The initial excise tax is 15% of the amount involved for each year or partial year the money sat in your general account instead of the employee’s IRA. If you don’t correct the problem, an additional 100% tax applies.6Office of the Law Revision Counsel. 26 USC 4975 – Tax on Prohibited Transactions
Correction means depositing the missed deferrals along with the earnings the money would have generated during the period it was late.7Internal Revenue Service. 401(k) Plan Fix-It Guide – You Haven’t Timely Deposited Employee Elective Deferrals Two correction paths exist. Minor operational mistakes can go through the IRS Self-Correction Program, which requires no contact with the IRS and no fee.8Internal Revenue Service. Correcting Plan Errors – Self-Correction Program (SCP) General Description Larger or recurring late deposits go through the DOL’s Voluntary Fiduciary Correction Program, which provides a structured process with conditional relief from certain excise taxes when you follow its requirements.9U.S. Department of Labor. Voluntary Fiduciary Correction Program
The real damage comes when late deposits go unnoticed for several pay periods. A pattern of late deposits over six months generates six separate prohibited transaction calculations, each with its own excise tax exposure. Building your payroll process around the 7-business-day safe harbor from the start costs less than any correction program will.