IRS Publication 560: Small Business Retirement Plans Guide

For small business owners, offering a retirement plan can be a powerful way to attract talent, reward employees, and secure their own financial futures. But navigating the maze of plan types, IRS limits, and compliance rules can be overwhelming—especially when penalties for mistakes are steep and the regulations seem to change every year. That’s where IRS Publication 560 steps in: it’s the authoritative manual that spells out everything employers need to know about SEP, SIMPLE, and qualified retirement plans.

Each year, Publication 560 is updated with fresh limits, new features, and critical clarifications. From plan selection and setup to contribution calculations and tax benefits, it serves as both a roadmap and a rulebook for businesses of all sizes. Whether you’re an HR professional, business owner, or trusted advisor, understanding this document is essential to keeping your retirement plan compliant and cost-effective.

This guide breaks down the most important sections and recent updates in Publication 560, translating IRS jargon into actionable steps. Throughout, you’ll find clear explanations, the latest contribution limits, and tips for avoiding common pitfalls. Need the official source? Download the current IRS Publication 560 PDF here. Ready to make sense of retirement plan compliance and set your business up for success? Let’s get started.

What Is IRS Publication 560 and Why It Matters

IRS Publication 560 is the Internal Revenue Service’s annual handbook for employers who offer—or want to offer—tax-favored retirement plans to small business owners and their employees. Updated each year, this document carries the force of federal guidance, detailing everything from the basic structure of different plan types to the deadlines and forms required for compliance.

At its core, Publication 560 breaks down three primary categories of retirement plans—SEP plans, SIMPLE plans, and qualified plans—and then walks through the rules for each, including:

  • How to establish and amend a plan
  • Contribution limits and compensation caps
  • Deduction rules and tax treatment of employer and employee contributions
  • Distribution rules, including withdrawals and required minimum distributions
  • Reporting and disclosure requirements, such as Forms 5500 and participant notices

Because tax law and regulatory thresholds change on a regular basis, relying on outdated guidance can expose sponsors to missed opportunities and costly mistakes. Publication 560 not only provides the current year’s limits and definitions but also calls out new features—like Roth SEP IRAs or student-loan matching under SECURE 2.0—that could enhance your plan’s appeal and compliance posture.

Who should read Publication 560? If you’re a small-business owner, HR director, CPA or advisor responsible for selecting or managing retirement plans, this resource is a must-have. Bookmark the online version at the IRS website—Publication 560—so you can quickly verify limits, deadlines, and filing instructions whenever questions arise.

Types of Retirement Plans Covered by Publication 560

Publication 560 organizes retirement plans into three broad categories—SEP plans, SIMPLE plans, and qualified plans. Each serves a different slice of the small-business universe, from sole proprietors to growing companies with up to 100 employees, and beyond. While SEP and SIMPLE plans prioritize ease of setup and administration, qualified plans offer greater flexibility and higher contribution limits in exchange for more complex rules.

SEP Plans: Definition and Purpose

SEP stands for Simplified Employee Pension. Under a SEP plan, the employer makes contributions on behalf of eligible employees directly into individual SEP IRAs.
• Contributions are discretionary and can vary from year to year.
• Plans are easy to adopt by completing IRS Form 5305-SEP or using a prototype document.
• All employees who meet basic service and age requirements must share proportionally in any employer contribution.
Because there’s no annual filing with the IRS, SEPs are popular among self-employed individuals and businesses that want high deduction limits—up to 25% of compensation or $69,000 in 2024—without a heavy administrative burden.

SIMPLE Plans: Definition and Purpose

SIMPLE plans—Savings Incentive Match Plans for Employees—come in two flavors: the SIMPLE IRA and the SIMPLE 401(k). They’re designed for employers with 100 or fewer employees who earned at least $5,000 in the prior year.
• Employees elect salary-reduction (deferral) contributions, up to the annual limit of $16,000 for 2024.
• Employers must either match deferrals dollar-for-dollar up to 3% of compensation or make a 2% nonelective contribution on behalf of all eligible employees.
• Setup windows run from January 1 to October 1, with a streamlined notice requirement in place of a formal plan document for SIMPLE IRAs.
These plans strike a balance: they allow both employee and employer contributions, with lower startup costs and minimal testing compared to larger qualified plans.

Qualified Plans: Definition and Purpose

Qualified plans—sometimes called H.R. 10 plans or Keogh plans when they cover the self-employed—are governed by ERISA and the Internal Revenue Code. They split into two main subtypes:
Defined Contribution Plans (profit-sharing, money-purchase, and 401(k) arrangements) establish individual accounts for each participant. Contributions may come from employers, employees (in the case of 401(k) deferrals), or both, subject to combined annual limits (for 2024, up to $69,000 plus catch-up if eligible). These plans must satisfy nondiscrimination testing (ADP/ACP) and other qualification rules.
Defined Benefit Plans promise a specified retirement benefit, normally expressed as an annual annuity. Employers calculate required contributions through actuarial assumptions, and assets park in a trust overseen by PBGC insurance in the event of plan termination. Annual benefit limits for 2024 top out at $275,000.
While qualified plans require formal written documents, ongoing testing, and more intensive administration, they unlock the highest potential deductions for both business owners and key employees.

Key Updates in Publication 560 for 2024 and 2025

Every year, Publication 560 reflects adjustments in contribution thresholds and introduces plan features that can help small businesses optimize retirement benefits. Staying current with these updates ensures you don’t miss out on higher deduction limits or new plan design options. In this section, we break down the most significant changes to compensation and deferral limits for 2024 and 2025, and dive into the new provisions enabled by the SECURE 2.0 Act.

Contribution and Compensation Limits

IRS Publication 560 sets the maximum compensation that can be considered for contribution calculations, as well as the caps on various plan contributions:

  • Compensation limit: For 2024, employers can use up to 345,000 of an employee’s earnings when figuring plan contributions and benefits; this rises to 350,000 in 2025.
  • 401(k), 403(b), and most 457(b) elective deferrals: Participants may defer up to 23,000 in 2024, increasing to 23,500 in 2025. (Catch-up contributions for those aged 50 and over remain at 7,500 for both years.)
  • IRA contributions: The individual IRA contribution limit climbs from 6,500 to 7,000 for 2024.
    (See the IRS announcement on IRA and 401(k) limits.)
  • Defined contribution plan limit: The combined employer and employee contributions can reach up to 69,000 in 2024 and 70,000 in 2025.
  • Defined benefit plan limit: Annual benefits are capped at 275,000 for plans effective in 2024, and at 280,000 for 2025.

These annual adjustments—driven by cost-of-living factors—mean plan sponsors should review their contribution formulas each year to make sure participants gain the full advantage of higher limits.

New Features Introduced by SECURE 2.0

The SECURE 2.0 Act, passed in December 2022, layered several enhancements onto existing retirement plans, and Publication 560 highlights these additions:

  • Roth SEP and Roth SIMPLE options: Employers can now permit employees to designate SEP and SIMPLE contributions as Roth contributions, unlocking after-tax deferrals with tax-free growth.
  • Student-loan matching: Plans may match employee student-loan repayments with employer contributions, helping employees who aren’t yet able to defer paycheck dollars directly into their retirement accounts.
  • Pension-Linked Emergency Savings Accounts (PLESAs): New short-term savings vehicles link emergency funds to defined contribution plans, offering liquidity while keeping money in a tax-favored wrapper.
  • Starter 401(k) deferral-only arrangement: Small employers can adopt a pared-down 401(k) plan that only allows employee deferrals, simplifying setup while meeting basic retirement benefits.
  • Midyear SIMPLE-to-401(k) switch: Sponsors may convert a SIMPLE plan into a safe harbor 401(k) midyear, providing greater flexibility for growing businesses.

By weaving these SECURE 2.0 features into Publication 560, the IRS has equipped plan sponsors with modern tools to boost participation, tailor benefits to workforce needs, and navigate the evolving retirement landscape without a cumbersome rulebook.

Deep Dive: Simplified Employee Pension (SEP) Plans

When you want high contribution limits without a hefty paperwork load, a SEP plan is often the first choice for small employers and self-employed individuals. It channels employer contributions directly into individual retirement accounts (IRAs), making administration straightforward and flexible from year to year.

What Is a SEP?

A SEP (Simplified Employee Pension) lets an employer contribute to traditional IRAs set up for each eligible employee. Rather than creating a trust or a new account structure, contributions flow into SEP IRAs that participants control. Employers decide annually whether to fund the plan—and by how much—so you can ramp up contributions in profitable years and dial them back when cash is tight.

Eligibility and Participation Requirements

To keep things simple and fair, SEP rules specify who must be included:

  • Age requirement: Employees must be at least 21 years old.
  • Service requirement: They must have worked for you in at least three of the last five years.
  • Compensation threshold: For 2024, only employees earning at least $750 count as eligible participants.

These rules apply uniformly—if you contribute for yourself, you must make the same percentage contribution for every other eligible employee. That consistency ensures the plan meets IRS nondiscrimination requirements automatically, since everyone is treated equally.

Setting Up a SEP Plan

Establishing a SEP is as simple as filing one of two options:

  • IRS Form 5305-SEP: A straightforward, fill-in-the-blank agreement you adopt without registering with the IRS or drafting custom language.
  • Prototype or volume-­submitter plan: A pre-approved document from a financial institution or TPA that you sign and return.

Deadlines are generous: you can adopt the SEP any time up to your federal tax-filing deadline (including extensions). That allows last-minute decisions—so if your year-end cash flow is healthier than expected, you can still fund retirement contributions and take the deduction.

Contribution Limits and Calculation

Under a SEP, employer contributions can reach the lesser of:

  • 25% of an employee’s compensation, or
  • The annual maximum of 69,000 for 2024.

For example, if an employee earns $100,000 in 2024, the maximum contribution would be calculated as:

0.25 × 100,000 = 25,000

Since $25,000 is less than the $69,000 cap, you could contribute up to $25,000 on that employee’s behalf. If an owner earns $300,000, the calculation would yield $75,000, but the $69,000 cap applies instead.

Deducting SEP Contributions

Employer contributions to a SEP are generally deductible in the year they’re made.

  • Sole proprietors report deductible contributions on Schedule C of Form 1040.
  • Corporations and partnerships take the deduction on their business returns (Forms 1120 or 1065).

No separate return or 5500 filing is needed for a SEP, which reduces both complexity and cost. Just make sure contributions are deposited by the return due date (including extensions) to qualify for the deduction.

Pros and Cons of a SEP Plan

Pros:

  • High contribution limits—up to 25% of pay or $69,000 in 2024.
  • Easy setup and minimal annual administration.
  • No annual IRS filings or complex nondiscrimination testing.

Cons:

  • Employer-only contributions; employees cannot defer salary into a SEP IRA.
  • Uniform percentage rule means you must contribute the same rate for all eligible staff, which can be expensive for larger workforces.

A SEP can be a powerful tool for business owners who want flexibility and simplicity, but if you anticipate relying heavily on employee salary deferrals or need selective contribution strategies, another plan type may offer a better fit.

Deep Dive: SIMPLE Plans (IRA and SIMPLE 401(k))

SIMPLE plans—Savings Incentive Match Plans for Employees—offer a straightforward way for small employers to combine employee salary deferrals with mandatory employer contributions. Unlike SEP plans, SIMPLE plans let both employees and employers put money into retirement, making them a popular choice for businesses with up to 100 employees that want a low-cost, easy-to-administer plan. Employers can choose between a SIMPLE IRA or a SIMPLE 401(k), each with its own documentation and deposit rules.

What Is a SIMPLE Plan?

A SIMPLE plan allows employees to contribute a portion of their salary on a pre-tax basis (or after-tax for Roth) and requires employers to make either matching or nonelective contributions.

  • SIMPLE IRA: Contributions go into an individual IRA opened by each eligible employee.
  • SIMPLE 401(k): Operates much like a standard 401(k) but follows the SIMPLE plan rules for contributions and testing.

By design, SIMPLE plans skip nondiscrimination testing and have minimal annual reporting, which keeps administration light for small businesses.

Eligibility and Participation Requirements

To establish a SIMPLE plan, an employer must have had 100 or fewer employees who earned at least $5,000 in compensation during the previous calendar year. Eligible employees are those who:

  • Earned at least $5,000 in any two prior years, and
  • Are expected to earn at least $5,000 in the current plan year.

All employees meeting these thresholds must be allowed to participate; part-time and seasonal workers cannot be excluded if they satisfy the criteria.

Setting Up a SIMPLE Plan

SIMPLE plans must be adopted between January 1 and October 1 of a given year. New businesses formed after October 1 should set up the plan as soon as administratively feasible. Sponsors choose one of two IRS model documents:

  • Form 5304-SIMPLE: Used when the employer works with an IRA trustee or custodian to handle contributions.
  • Form 5305-SIMPLE: Used when contributions are managed through a financial institution acting as recordkeeper.

While there’s no annual Form 5500 filing, employers must provide a written notice to each eligible employee at least 60 days before the plan’s effective date. That notice outlines contribution options, limits, and deposit dates.

Contribution Limits and Structure

SIMPLE plans have lower limits than other qualified plans but still enable meaningful retirement savings:

  • Employee deferrals: Up to $16,000 in 2024 and $16,500 in 2025.
  • Catch-up contributions (age 50+): $3,500 in 2024–2025 (or $3,850 for certain plans under SECURE 2.0).
  • Employer contributions (choose one):
    • Matching: Dollar-for-dollar match up to 3% of compensation.
    • Nonelective: Flat 2% of compensation for all eligible employees, regardless of deferrals.

Employee deferrals must be deposited within 30 days after each month in which they were withheld. Employer contributions are due by the employer’s tax-filing deadline, including extensions.

Tax Treatment of SIMPLE Contributions

Employee salary-reduction contributions to a SIMPLE plan reduce taxable income in the year they’re made. Employer contributions—matching or nonelective—are deductible as a business expense, similar to SEP contributions. If the plan document allows, participants may designate deferrals and employer contributions as Roth, meaning after-tax dollars grow tax-free and qualified withdrawals aren’t taxed.

Optional Features Under SECURE 2.0

SECURE 2.0 introduced enhancements that SIMPLE plan sponsors can adopt to boost participation and flexibility:

  • Roth designation for employer nonelective and matching contributions.
  • Additional nonelective contributions up to 10% of compensation (capped at $5,000 for 2024).
  • Matching contributions tied to qualified student-loan repayments.

These features let small employers customize their SIMPLE plans to better support employees while staying aligned with modern retirement benefits trends.

Deep Dive: Qualified Retirement Plans

Qualified retirement plans under Publication 560 offer the broadest flexibility in design and the highest potential deductions, but they come with added complexity. Sometimes called H.R. 10 plans or Keogh plans for self-employed individuals, these arrangements must comply with both the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code. Whether you’re a small business owner or a solo entrepreneur, understanding the ins and outs of qualified plans can be key to maximizing retirement savings for you and your employees.

Defined Contribution Plans

Defined contribution plans—such as profit-sharing plans, money-purchase pension plans, and 401(k) arrangements—allocate a specific contribution to each participant’s individual account. Employers, employees, or both can fund these accounts, subject to the overall limit of 69,000 for 2024 (and 70,000 for 2025), plus any applicable catch-up amounts.

Key features:

  • Profit-sharing: Employer makes discretionary contributions, often based on a percentage of compensation.
  • Money-purchase: Employer contribution is a fixed percentage, requiring predictable annual contributions.
  • 401(k): Employees defer a portion of their salary (up to 23,000 in 2024), possibly with an employer match.

Unlike SEP or SIMPLE plans, defined contribution plans must pass nondiscrimination tests (ADP/ACP) to ensure highly compensated employees don’t receive a disproportionate benefit. Year-end testing and annual Form 5500 filings are standard requirements, adding layers of administration and reporting.

Defined Benefit Plans

In a defined benefit plan, participants receive a predetermined retirement benefit—often expressed as an annual payout—regardless of investment performance. Employers calculate their funding obligations using actuarial assumptions, and contributions must satisfy minimum funding standards set by ERISA.

Important considerations:

  • Benefit promise: The plan document specifies a formula (e.g., a percentage of final average pay times years of service).
  • Funding rules: Actuarial valuations establish required contributions, which may be paid in quarterly installments.
  • RMD rules: Participants must begin required minimum distributions at age 73 (or 75, depending on birthdate and plan year).

Defined benefit plans can offer generous tax deductions—sometimes exceeding the limits of defined contribution plans—but they demand close coordination with an actuary and may trigger premiums to the Pension Benefit Guaranty Corporation (PBGC).

Advantages and Drawbacks

Qualified plans shine when your goal is to lock in sizable, tax-deductible contributions or to tailor benefits for key employees. They can also support sophisticated features—such as safe harbor provisions or Roth in-plan conversions—that enhance plan design. However, that flexibility comes at a cost:

Pros:

  • Potential for very high employer deductions.
  • Ability to structure contributions selectively (e.g., top-heavy or surplus sharing).
  • Extensive design options, from safe harbor safe harbors to plan loans.

Cons:

  • ERISA compliance: formal plan documents, fiduciary responsibilities, and annual Form 5500 filings.
  • Nondiscrimination testing (ADP/ACP) and complex eligibility rules.
  • PBGC premiums and potential guarantees, which can increase plan expenses.

For businesses ready to invest in long-term retirement goals, qualified plans can be a powerful tool. But if administrative simplicity is paramount, SEP or SIMPLE plans may still be the better choice.

Setting Up Your Plan: Documentation and Deadlines

Setting up a retirement plan goes beyond selecting the right design—it also means handling adoption paperwork, meeting IRS and ERISA deadlines, and keeping your plan documents current. Laying this groundwork correctly helps you avoid compliance headaches, upholds participants’ benefits, and preserves your plan’s tax-favored status.

Adoption Deadlines and Written Plan Requirements

Each type of plan has its own official deadline for adoption and requires a formal written agreement:

  • SEP plans can be adopted as late as your federal tax-filing deadline (including extensions).
  • SIMPLE plans must be established between January 1 and October 1 of the plan year. If your business starts after October 1, you have until “administratively feasible” to set up the plan.
  • Qualified plans (profit-sharing, 401(k), money-purchase) generally need to be in place by your business’s year-end, though preapproved documents sometimes allow additional leeway.

ERISA mandates that every retirement plan be governed by a written plan document or an IRS prototype/volume-submitter document. This plan outlines eligibility rules, contribution formulas, vesting schedules, distribution procedures, and administrative responsibilities. Without an up-to-date, signed plan document, you risk losing the plan’s qualified status or facing Department of Labor penalties.

Choosing Providers and Service Providers

Partnering with the right experts makes administration and compliance much simpler:

  • Third-Party Administrators (TPAs) handle nondiscrimination testing, Form 5500 preparation, participant forms, and government filings.
  • Recordkeepers maintain individual account records, track contributions and distributions, and issue participant statements.
  • Custodians and Trustees hold plan assets in trust, execute investments, and prepare trust accounting.

At Summit Consulting Group, we serve as your ERISA section 402(a) Named Fiduciary and 3(16) administrator, overseeing paperwork, filings, and compliance checks. Meanwhile, you retain established relationships with your chosen custodian or investment manager, ensuring continuity and avoiding service transfers.

Plan Amendments and Maintaining Compliance

Tax law and IRS guidance change regularly, so plan documents must be amended to reflect new rules—whether it’s SECURE 2.0 enhancements, updated contribution limits, or revised distribution provisions. A compliant amendment process typically follows these steps:

  1. Annual Review: Monitor IRS and DOL releases for any new statutory or regulatory requirements.
  2. Document Comparison: Compare your current plan document against the latest model amendments or preapproved language.
  3. Adoption of Amendments: Execute required amendments by the statutory deadline (often the end of the plan year in which the change takes effect).

Maintaining a compliance calendar—complete with reminders for amendment deadlines, Form 5500 filings, and participant notices—reduces the risk of missed steps. Many sponsors find that delegating these tasks to a dedicated TPA or fiduciary service, such as Summit Consulting Group, delivers peace of mind and helps avoid costly penalties.

Contribution Limits and Deadlines

Knowing your plan’s contribution ceilings and the exact timing for making deposits is vital to maintaining tax advantages and staying compliant. Publication 560 uses the term “annual additions” to capture all contributions—including employer and employee deferrals—credited to a participant’s account in a given year. At the same time, an annual compensation limit caps the amount of an employee’s pay that can be used in calculating contributions and benefits. Below, we break down these thresholds and the key deadlines you can’t miss.

Annual Addition and Compensation Limits

Annual additions encompass every dollar that flows into a participant’s account: employer contributions, salary deferrals (for plans that allow them), and any forfeitures allocated back. For defined contribution plans, the total of these contributions cannot exceed the lesser of:

  • The annual addition limit: 69,000 for 2024 and 70,000 for 2025.
  • 100 percent of the participant’s compensation.

Meanwhile, the IRS caps the compensation you can use when figuring contributions and benefits. Under Publication 560:

  • The compensation limit is 345,000 for 2024.
  • It rises to 350,000 for 2025.

If an employee earns above these thresholds, any pay beyond the cap is disregarded when determining contributions or benefits. Keeping these limits in mind ensures that your allocations stay within IRS parameters and that deductions are fully allowed.

Elective Deferrals and Employer Contributions

“Elective deferrals” refer to pre-tax (or designated Roth) salary reductions that employees choose to defer into a retirement plan. Key deferral limits include:

  • 401(k), 403(b), and most 457(b) plans: up to 23,000 in 2024, increasing to 23,500 in 2025.
  • SIMPLE IRA and SIMPLE 401(k): up to 16,000 in 2024 and 16,500 in 2025.
  • SEP plans: employees cannot make elective deferrals; only employer contributions apply.

Employer contributions—which vary by plan—follow these general rules:

  • SEP plans: up to 25 percent of compensation per employee, subject to the annual addition limit (69,000/70,000).
  • SIMPLE plans: either a dollar-for-dollar match up to 3 percent of pay or a 2 percent nonelective contribution for each eligible employee.
  • Qualified defined contribution plans (profit-sharing, money purchase): discretionary or fixed contributions, also capped by the annual addition limits above.

Balancing employee deferrals with employer matches or discretionary contributions helps you maximize retirement savings while adhering to IRS thresholds.

Catch-Up and Special Contributions

To help older participants accelerate their retirement savings, the IRS allows “catch-up” contributions for those aged 50 or over by year-end:

  • 401(k), 403(b), and most 457(b) plans: an additional 7,500 in 2024 and 2025.
  • SIMPLE plans: a 3,500 catch-up in 2024–2025, or 3,850 for certain plans under SECURE 2.0.

Catch-up contributions are limited to the lesser of the statutory catch-up amount or the excess of compensation over the elective deferrals that aren’t catch-up dollars.

Some plans also permit special contributions—like additional nonelective contributions of up to 10 percent of compensation (capped at $5,000 for 2024) under SECURE 2.0 for certain SIMPLE arrangements. These features give sponsors flexibility to tailor benefits for a diverse workforce.

Deadline Dates

Meeting contribution deadlines is just as important as setting the correct amounts. Below are the key timing rules:

  • Employee deferrals (401(k), 403(b), 457(b)): Deposit as soon as reasonably possible, but no later than 7 business days after withholding from payroll.
  • SIMPLE IRA deferrals: Deposit by the 30th day of the month after withholding.
  • Employer contributions (SEP, SIMPLE match/nonelective): Fund by the employer’s federal tax-return due date, including extensions.
  • Profit-sharing and qualified plan contributions: Make by your business’s return due date (with extensions) to claim a current-year deduction.

Failing to deposit on time can result in excise taxes or the disqualification of deferrals—jeopardizing both the plan’s tax status and participant benefits. Use a compliance calendar or engage a trusted TPA like Summit Consulting Group to automate reminders and filings, ensuring every contribution lands before its deadline.

Tax Deductions and Small Employer Tax Credits

Offering a retirement plan isn’t just a perk for employees—it also unlocks valuable tax savings for your business. Contributions you make on behalf of participants are generally deductible, and qualified small employers can claim additional credits to offset setup and administrative costs. Below, we break down your options for deductions and credits so you can maximize the bottom-line benefits of sponsoring a plan.

Deductible Employer Contributions

Every dollar you contribute to a qualified retirement plan reduces your taxable income for the year. Whether you choose a SEP, SIMPLE, or a full-fledged qualified plan, the IRS lets you deduct employer contributions as a business expense:

  • SEP plans: Deduct up to the lesser of 25% of eligible compensation or the annual limit ($69,000 for 2024) on your business return (Schedule C for sole proprietors, Form 1120 for corporations, or Form 1065 for partnerships).
  • SIMPLE plans: Employer matches or nonelective contributions (2% of pay) are fully deductible in the year they’re deposited.
  • Qualified defined contribution plans (profit-sharing, money-purchase, 401(k)): Employer contributions follow the same annual-addition limit ($69,000) and are reported on your corporate or partnership return.

Example: If your C-corp contributes 3% match for an employee earning $100,000, that $3,000 match reduces your taxable income by the same amount. Over a dozen staff members, those matches and your own contributions can add up to a substantial deduction—and may even cut your overall plan costs by as much as 32%-65% when combined with our cost-reduction strategies.

Small Employer Startup Cost Credit

To help smaller businesses get a plan off the ground, the IRS offers a startup credit worth up to $5,000 per year for three years. This credit covers a percentage of your “ordinary and necessary” expenses for establishing a SEP, SIMPLE IRA, or qualified plan—including fees for legal, consulting, and recordkeeping services.

To claim the credit, use Form 8881 (Credit for Small Employer Pension Plan Startup Costs) and attach it to your business return. For full rules and eligibility, see the IRS’s guide on retirement plans startup costs tax credit.

Illustration:
A business with 10 non-highly compensated employees fronts $4,000 in plan-setup costs during its first year. Under the credit rules, it can claim up to 50% of those expenses (capped at the lesser of $250 per employee or $5,000). In this case:

10 employees × $250 per employee = $2,500 cap
50% × $4,000 setup costs   = $2,000 credit

That $2,000 credit directly offsets the business’s tax liability, dollar-for-dollar.

Small Employer Automatic Enrollment Credit

If you add an eligible automatic contribution arrangement—where employees are defaulted into deferrals unless they opt out—you may be able to claim an additional credit of up to $500 per year for three years. This incentive, also claimed on Form 8881, encourages broader participation and helps cover the cost of drafting notices and updating payroll systems.

Saver’s Credit for Participants

Beyond employer tax breaks, participants in your plan may qualify for the retirement savings contributions credit (often called the Saver’s Credit). By completing Form 8880, eligible employees can receive a non-refundable credit worth 10%, 20%, or 50% of their retirement contributions (up to $2,000 per person), depending on their adjusted gross income and filing status. While this credit doesn’t affect your plan’s administration directly, highlighting it can boost enrollment and engagement by showing employees how deferrals shrink their own tax bills.


By combining deductible contributions with available tax credits, small employers can significantly reduce both the net cost of funding a retirement plan and their overall tax burden. Consult your CPA or leverage Summit Consulting Group’s 3(16) and 402(a) fiduciary services to ensure you capture every available advantage—while staying compliant and focused on growing your business.

Reporting and Disclosure Requirements

Accurate, timely reporting and transparent disclosures are essential for keeping your retirement plan in good standing with both the IRS and the Department of Labor (DOL). Missed deadlines or incomplete filings can trigger penalties, disqualify your plan’s tax status, and expose you to fiduciary liability. Below, we break down the key reporting obligations and the notices you must provide to participants.

Form 5500 Series

Most retirement plans subject to ERISA must file an annual Form 5500-series return with the Employee Benefits Security Administration (EBSA). Which form you file depends on your plan type and size:

  • Form 5500
    Used by large plans or those with more than 100 participants, plus most defined benefit and defined contribution plans that don’t qualify for a smaller-plan exemption.
  • Form 5500-SF (Short Form)
    Available for plans with fewer than 100 participants that meet certain conditions (e.g., no benefit restrictions, minimal forfeitures).
  • Form 5500-EZ
    For one-participant plans and plans covering only partners or sole proprietors (including their spouses).

All Form 5500-series filings are due by the last day of the seventh month after your plan year ends (for calendar-year plans, that’s July 31). If you obtain an extension, you’ll have an additional two and a half months to file. Electronic filing via the DOL’s EFAST2 system is mandatory, and filings must include schedules for assets, service providers, and, where applicable, participants.

Participant Notices and Summary Plan Description (SPD)

ERISA requires that plan sponsors keep participants informed about their rights and the plan’s features:

  • Summary Plan Description (SPD)
    A concise guide to the plan’s rules, eligibility criteria, benefits, claims procedures, and fiduciary obligations. You must furnish a new SPD to participants within 90 days of their enrollment and distribute an updated SPD whenever you materially amend the plan (but at least every five years).
  • Summary Annual Report (SAR)
    If you file a Form 5500, you must provide participants a SAR, summarizing the information from the Form 5500 and any schedules. This keeps members informed of plan finances and operations.
  • Fee Disclosures
    For 401(k) arrangements and other participant-directed plans, you must provide an annual notice detailing plan fees, investment expenses, and any individual service fees, enabling participants to evaluate costs and make informed investment decisions.

Additional IRS and DOL Filings

Beyond the Form 5500-series and SPD requirements, other filings may apply depending on your plan’s status or changes:

  • Form 8955-SSA
    When a participant’s benefits vest and they’re no longer active in the plan, you report vested deferred benefits on Form 8955-SSA. This form also notifies the Social Security Administration for tracking future benefits.
  • Form 5310
    If you terminate a plan or request a determination letter on plan termination, you may need to file Form 5310 with the IRS to demonstrate that the termination follows the Internal Revenue Code’s certification requirements.
  • DOL Notices and Filings
    Certain events—such as significant reductions in plan benefits or changes in funding—require notices to the DOL or to participants under ERISA. Sponsors should monitor DOL guidance for any special filings or disclosures triggered by regulatory developments.

Staying on top of these reporting and disclosure obligations safeguards your plan’s qualified status and reinforces your role as a responsible fiduciary. Summit Consulting Group’s administrative and fiduciary services can help you track deadlines, prepare accurate filings, and deliver all required notices so you can focus on running your business with confidence.

ERISA Fiduciary Responsibilities for Plan Sponsors

Sponsoring a retirement plan comes with more than just selecting investments and submitting paperwork—it carries legal obligations under ERISA to act in your participants’ best interests. As a plan sponsor, you are considered a fiduciary whenever you exercise discretionary control or provide investment advice. Understanding and fulfilling these duties not only helps you avoid costly penalties but also fosters trust among employees relying on their benefits.

Definition of a Plan Fiduciary

Under ERISA, a fiduciary is anyone who has discretionary authority or control over plan management, plan assets, or who provides investment advice for a fee. That means if you:

  • Choose or remove plan investments
  • Select and oversee service providers
  • Interpret plan provisions in a way that affects participant benefits

…you’re wearing a fiduciary hat. Even well-intentioned decisions can trigger liability if they stray from ERISA’s strict standards.

Core Duties Under ERISA Section 404(a)

ERISA Section 404(a) outlines five fundamental duties every fiduciary must meet:

  1. Exclusive Purpose: Always act solely to benefit plan participants and their beneficiaries, not to advance your own interests.
  2. Prudence: Invest and manage plan assets with the care, skill, and diligence that a prudent expert would exercise.
  3. Diversification: Spread investments across asset classes to minimize the risk of large losses.
  4. Plan Document Adherence: Follow the terms of your written plan document, unless doing so would violate ERISA or IRC requirements.
  5. Reasonable Fees: Make sure that any fees paid—for investments, recordkeeping, or advisory services—are fair and comparable to what other plans pay.

Documenting your decision-making process—such as meeting minutes or investment policy statements—demonstrates prudent judgment and can be invaluable if your actions are ever questioned.

Timely Deposit of Employee Contributions

One of the simplest yet most critical fiduciary obligations is the prompt deposit of participant deferrals. Employee contributions must be remitted to the plan as quickly as possible and, in almost all cases, no later than seven business days after withholding. Missing this window can result in prohibited transaction excise taxes and personal liability for the shortfall. Establishing a clear payroll-to-trust handoff procedure helps ensure these dollars are invested right away.

Avoiding Prohibited Transactions

ERISA prohibits certain self-dealing and conflicts of interest known as “prohibited transactions.” You cannot cause the plan to engage in transactions with parties in interest—such as the plan sponsor, service providers, or family members—that benefit those parties at the expense of participants. Examples of forbidden activity include:

  • Selling property between the plan and a fiduciary
  • Using plan assets to benefit a company officer or a related party
  • Charging excessive fees for recordkeeping or advisory services

For a deeper dive into your fiduciary duties and prohibited-transaction rules, see the Department of Labor’s “Understanding Your Responsibilities” guidance. (https://www.dol.gov/agencies/ebsa/employers-and-advisers/small-business-owners/understanding-your-responsibilities)

Reporting Fiduciary Actions

Transparency is another cornerstone of fiduciary duty. ERISA requires you to disclose key plan information to both the government and participants:

  • Form 5500 Schedules: When you file Form 5500 (or 5500-SF), include schedules that list fiduciaries, service providers, and compensation arrangements.
  • Service-Provider Disclosures: Under DOL fee-disclosure rules, you must provide participants with detailed information on plan costs and investment expenses every year.
  • Participant Notices: Furnish a Summary Plan Description (SPD) at enrollment and after material changes, along with an annual Summary Annual Report (SAR) if you file Form 5500.

Accurate, timely reporting not only keeps the plan in good standing but also helps participants make informed decisions about their retirement savings.


Navigating ERISA’s fiduciary landscape can feel daunting, but you don’t have to go it alone. Summit Consulting Group offers comprehensive 3(16) and ERISA Section 402(a) services to manage fiduciary responsibilities, streamline compliance, and document every step of the process—so you can focus on running your business and your employees can count on a well-governed retirement plan.

PBGC Insurance Coverage for Defined Benefit Plans

Defined benefit plans promise participants a specific retirement benefit, but when a plan sponsor can’t meet its funding obligations, retirees may face uncertainty. The Pension Benefit Guaranty Corporation (PBGC) serves as a federal backstop, insuring qualified single-employer defined benefit plans so participants still receive a portion of their promised benefits if the plan terminates or the sponsor becomes insolvent.

Role of the Pension Benefit Guaranty Corporation

Created under ERISA, PBGC operates an insurance program funded by annual premiums paid by plan sponsors. If a covered plan terminates without sufficient assets—or if the employer enters bankruptcy—PBGC steps in as trustee to administer the plan and pay insured benefits. This structure preserves retirement security for workers and helps stabilize the broader pension system.

Benefits Covered vs. Not Covered

PBGC protects core pension benefits defined by the plan’s formula, including:

  • Normal and early retirement annuities
  • Disability benefits (up to the plan’s normal retirement age)
  • Survivor annuities for spouses or other named beneficiaries

Excluded from PBGC coverage are:

  • Health, welfare, or other nonpension benefits
  • Supplemental features such as cost-of-living adjustments beyond the plan’s original terms
  • Life insurance, severance pay, and similar fringe benefits

Understanding these limits ensures sponsors and participants know which benefits carry federal insurance.

Intervention Triggers

PBGC intervenes in two primary situations:

  1. Plan Termination: When a sponsor chooses or is forced to terminate a plan that lacks the assets to pay all benefits.
  2. Sponsor Insolvency: If an employer becomes bankrupt or otherwise financially unable to meet ERISA’s minimum funding requirements.

In either case, PBGC evaluates the plan’s assets and liabilities before assuming responsibility for covered benefits.

Benefit Guarantee Limits

PBGC’s insurance guarantees are subject to statutory caps that vary by age and the form of payment. For example, the maximum monthly benefit for a 65-year-old in 2025 is approximately $6,750 for a straight-life annuity (the exact figure adjusts annually). If plan assets exceed PBGC’s guarantee amount, those excess assets are used to pay additional benefits. For current guarantee limits and detailed rules, see PBGC’s benefit guarantee fact sheet: PBGC’s benefit guarantee fact sheet.

Frequently Asked Questions About Publication 560

Publication 560 covers a lot of ground, and plan sponsors regularly have follow-up questions once they dig into the details. Below are answers to some of the most common queries about self-employment options, correcting mistakes, mid-year plan changes, and where to find the official IRS guidance.

What if I’m Self-Employed Only?

Self-employed individuals can choose between a SEP IRA and a solo (one-participant) 401(k). A SEP IRA is easy to adopt—simply execute Form 5305-SEP by your business’s tax-filing deadline (including extensions)—and allows contributions up to 25% of net earnings (capped at $69,000 for 2024). A solo 401(k) lets you make both employee deferrals (up to $23,000 in 2024, plus a $7,500 catch-up if you’re 50 or older) and employer contributions under the same annual limits that apply to regular 401(k) plans. Note that a solo 401(k) must be established by December 31 of the plan year.

How Do I Correct Excess Contributions?

Mistakes happen, but Publication 560 provides a clear remedy. If elective deferrals exceed IRS limits, you must distribute the excess amount plus earnings by April 15 following the contribution year; your plan will issue a Form 1099-R for the corrective distribution. For employer contributions that push total annual additions over the $69,000 (2024) limit, arrange a similar withdrawal of the excess and earnings by your tax-filing deadline (with extensions). Keep meticulous records of each corrective distribution to avoid excise taxes and preserve your plan’s qualified status.

Can I Switch from SIMPLE to a 401(k) Mid-Year?

Yes—thanks to SECURE 2.0, employers can convert a SIMPLE IRA to a safe harbor 401(k) during the same plan year for plan years beginning after December 31, 2023. This mid-year switch lets you offer higher contribution limits and additional features without waiting for the next January 1. To execute the change, amend your plan documents in line with IRS model language, send the required participant notices, and ensure the new safe harbor 401(k) meets ERISA’s contribution and vesting rules.

Where Can I Find the Official Publication 560?

Always refer back to the source for the latest rules and figures. Download the current PDF of Publication 560 here: https://www.irs.gov/pub/irs-pdf/p560.pdf. For an interactive, web-based version that’s updated with any new IRS guidance, bookmark https://www.irs.gov/publications/p560. Keeping these links handy ensures you’re always working with the most current retirement-plan rules.

Next Steps for Small Business Retirement Planning

Now that you’re familiar with the key provisions and recent updates in IRS Publication 560, it’s time to put that knowledge into action. Start by downloading the official Publication 560 PDF (https://www.irs.gov/pub/irs-pdf/p560.pdf) and bookmarking the online version at https://www.irs.gov/publications/p560. These resources will be your go-to reference for annual contribution limits, plan-design options, and compliance deadlines.

Take a close look at your existing retirement plan—or the plan you’re considering—and compare it to the options outlined in Publication 560. Are you taking full advantage of SEP, SIMPLE, or qualified plan features? Could newly introduced SECURE 2.0 provisions—like Roth SEP contributions or student-loan matching—better serve your workforce? A side-by-side review will reveal gaps and opportunities to boost both employer deductions and employee engagement.

Finally, don’t hesitate to enlist professional support. Retirement-plan rules can be nuanced, and missing a deadline or miscalculating a contribution can lead to penalties. At Summit Consulting Group, we offer end-to-end plan administration, ERISA section 402(a) fiduciary services, and 3(16)/3(38) investment oversight to simplify compliance and optimize plan design. Visit our homepage at www.geauxsummit401k.com to learn how we can help you select the right plan, automate paperwork, and ensure your retirement strategy stays on track—year after year.

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