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Small Businesses Have Until October 1 to Make SIMPLE and SEP IRA Contributions

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March 15 and April 15 aren’t the only important tax deadlines. For small business owners who make employer contributions to retirement plans for themselves or their employees, September and October are just as important.

 

 

 

If you filed for a tax extension, your return is now due, and your employer contributions for 2015 have to be made by the extension date. Your decisions include:

  • Whether and when to establish a new SEP for your small business
  • If or how much you want to contribute as an employer to your new or existing SEP IRA
  • When to contribute the mandatory SIMPLE IRA employer contribution

 

Tax Filing Deadlines

Here's when tax returns are due for each type of entity;

Employer

Tax Return Due Date

Extension Deadline

Sole Proprietor

April 15

October 15

Partnership

April 15

September 15

Corporation (C and S Corp)

March 15

September 15

 

Employer Contributions for SEP IRAs

Employer contributions to SEP IRAs are discretionary, therefore, you, as an employer, has the option to decide each year whether to contribute. If you got an extension for your 2015 taxes, you have until October 15 to make the contribution and reduce your tax liability for 2015, while also saving for your retirement.  You can even establish a brand new SEP IRA for 2015 as long as you establish and fund the plan by your October 15 tax extension deadline.  

You can contribute a maximum of 25 percent of an employee’s compensation, not to exceed $53,000.

Employer Contributions for SIMPE IRAs

Before January 2015, you notified your employees of the type of employer contribution you would make to your employees’ SIMPLE IRA: matching or profit-sharing. It is now time to keep your promise and to keep in good standing with the IRS.

If your chose an employer matching contribution, it must match, dollar-for-dollar, the amount of compensation your employees elected to defer, up to 3% of the employee’s compensation.

If you chose not to link your contribution to your employees’ deferral contributions, you must make a non-elective (profit-sharing) contribution equal to 2% of the employee’s compensation.

If you don’t make those contributions for 2015 by the tax deadline as an employer, you will have to go through the IRS correction program later on. It’s far better to plan ahead and meet the deadline.

Establishing a New SIMPLE IRA Plan for Employees

If you have fewer than 100 employees, it’s not too late to set up a SIMPLE IRA plan for your employees for the 2016 tax year. Its salary deferral features allow employees to contribute to their account, an attractive feature for many employers.

SIMPLE IRAs work on a calendar year. Because the IRS requires employers to give employees at least three months to make their contributions to a newly established plan, they must be established by October 1. (This is called a “short plan year.”)

Typically the SIMPLE IRA document must be signed by the employer and the IRA custodian by October 1 to be valid for the plan for the 2016 calendar year.

Remember how fast summer flew by? September will do the same thing. Don’t wait until the last minute. Entrust makes it easy to open an account online. Do it today.

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