The SIMPLE IRA Has an October 1 Deadline: What Michigan Small Employers Need to Do Before the Window Closes

You Still Have Time, But Not Much

September is a busy month for small business owners. Quarterly estimates are due, year-end is close enough to feel real, and the calendar has a way of moving faster than it should. Inside that same window, there is a retirement plan deadline that most Michigan employers either do not know about or assume is someone else's problem.

It is not. If you want to establish a SIMPLE IRA for your business in time to take 2026 deductions, the plan document must be signed and employees must receive written notice by October 1, 2026. Miss that date and the earliest your employees can begin participating is January 1, 2027. The 2026 deductions are simply gone.

This article is not a general overview of retirement planning options. There is a time for that conversation. This is a deadline article. We will cover what the October 1 rule actually requires, who the SIMPLE IRA is built for, what it costs and what it saves, and the exact steps to complete before time runs out. If you are also looking at several high-value tax moves with October deadlines, this one belongs at the top of that list.

Only about 28% of businesses with fewer than 10 employees currently offer a retirement plan, according to the Bureau of Labor Statistics. If your business is in that majority, September is the month that changes it, or does not.

What the October 1 Deadline Actually Is and Where It Comes From

The SIMPLE IRA, which stands for Savings Incentive Match Plan for Employees, is a retirement plan structure governed by IRC Section 408(p). That section requires that eligible employees receive at least a 60-day election period before the plan year begins. Because SIMPLE IRA plans operate on a calendar year starting January 1, working backward 60 days lands squarely on November 2. But the IRS rounds that requirement into a cleaner rule: the plan must be established, and employees must receive written notice, no later than October 1.

In plain terms, this means two things must happen before October 1, 2026. First, you sign a written plan document. Second, every eligible employee receives a Summary Description explaining how the plan works and what they can contribute. Both steps, not just one.

If either step is skipped or completed after October 1, the plan is not valid for 2026. The consequence is not a penalty or a fine; it is simply lost time. The next available entry point is January 1, 2027, and every dollar of employer contributions and employee deferrals that could have been shielded from taxes in 2026 remains unshielded.

One limited exception exists: if your business came into existence after October 1, 2026, you may establish a SIMPLE IRA as soon as administratively feasible. The 60-day notice requirement still applies; it is just measured from when the business actually started rather than from October 1. If you launched your Michigan LLC in November, you are not automatically locked out. Everyone else is working against the same clock.

Who the SIMPLE IRA Is Actually Built For

Before you spend time on logistics, it is worth confirming that the SIMPLE IRA fits your situation. Many small employers assume any retirement plan will do and discover later that their entity type or workforce profile points somewhere else entirely.

The eligibility rules are specific. A SIMPLE IRA is available to businesses with 100 or fewer employees who earned at least $1,000 during the prior calendar year. If your headcount has grown past 100 eligible employees, the SIMPLE IRA is no longer available to you. There is also a significant restriction: an employer with a SIMPLE IRA generally cannot maintain any other qualified retirement plan at the same time. A narrow exception applies to collectively bargained plans, but most small Michigan employers are not in that situation. If you already have a 401(k) or SEP IRA in place, talk to a CPA before attempting to add a SIMPLE IRA; the interaction is not straightforward.

The business profile that fits the SIMPLE IRA best is one that most Brighton-area CPAs know well: a small professional services firm, a plumbing or electrical contractor, a medical or dental practice, a restaurant or retail shop with a stable core of W-2 employees. These are businesses where the owner wants to offer a real retirement benefit but does not want to pay for 401(k) administration, annual Form 5500 filings, and nondiscrimination testing. The SIMPLE IRA has none of those requirements. There is no Form 5500. There is no testing. Administrative overhead is minimal.

By contrast, a SEP IRA works better for sole proprietors or businesses where the owner is the only meaningful contributor; employer contributions under a SEP go to all eligible employees at the same percentage, which gets expensive fast when there are multiple employees. A Solo 401(k) is only available if you have no full-time W-2 employees other than an owner-spouse. If you are already navigating employer payroll obligations you may have already triggered because you brought on your first W-2 employee this year, the SIMPLE IRA is likely the most practical path forward.

What This Costs the Employer and What the Tax Deduction Looks Like

The SIMPLE IRA comes with mandatory employer contributions, which is the honest place to start. You cannot set one up and then opt out of contributing. Every year the plan is active, you choose one of two contribution methods.

Option one is the matching contribution: you match each participating employee's deferral dollar-for-dollar, up to 3% of their compensation. Employees who do not contribute get nothing. Option two is the nonelective contribution: you contribute 2% of each eligible employee's compensation regardless of whether they contribute themselves. The nonelective method is more predictable in cost but applies to everyone on the eligible list.

Both methods are fully deductible as a business expense, reducing your federal taxable income and your Michigan taxable income, which sits at a flat 4.25% rate.

Consider an illustrative example. A Michigan S-corporation has five employees, each earning $60,000. The employer chooses the 3% match and all five employees defer at least 3% of their salary. The employer's total matching contribution is $9,000 (five employees times $1,800 each). At a combined federal effective rate of 24% and Michigan's 4.25% flat rate, the illustrative federal tax savings on that $9,000 deduction would be roughly $2,160, and the Michigan savings would be approximately $383. These are illustrative figures based on the deduction value, not guaranteed outcomes; your actual tax situation will depend on your total income, entity type, and other deductions. Reviewing your projected net income before year-end is the right way to pressure-test these numbers against your actual situation, and understanding how employer contributions affect your estimated tax obligation matters if you are paying quarterly.

For employers with 50 or fewer employees, the SECURE 2.0 Act also created a meaningful startup tax credit. The credit covers up to 100% of eligible startup costs for plans established after December 29, 2022, with a minimum of $500 and a maximum of $5,000 per year for each of the first three years the plan is in effect. For many Michigan small businesses, this credit can reduce the net cost of establishing the plan to near zero in year one.

One flexibility worth knowing: the employer matching percentage can be reduced to as low as 1% in two out of any five consecutive years. If a lean year hits, you are not trapped at the 3% level. You must notify employees before the reduction takes effect, but the option is there.

The Exact Steps to Complete Before October 1, 2026

This section is the checklist. If you are skimming, this is where to stop and read carefully.

Step 1: Choose your plan document form. The IRS provides two model forms. Form 5304-SIMPLE allows each employee to select their own financial institution for their individual IRA. Form 5305-SIMPLE requires all participants to use a single financial institution designated by the employer. Neither form is filed with the IRS; you complete it, sign it, and keep it as your plan document. The choice between them is partly logistical: 5304 gives employees flexibility but requires you to track multiple institutions; 5305 is simpler to administer.

Step 2: Select a financial institution or institutions. Most large brokerage firms and banks offer SIMPLE IRA custodial services. This decision should be made before the plan document is completed, not after.

Step 3: Execute the plan document. Complete the appropriate form and sign it. The date matters. It must be dated before October 1, 2026.

Step 4: Distribute the Summary Description. Every eligible employee must receive a written Summary Description explaining the plan terms, contribution limits, and their right to make or change deferral elections. This notice must reach employees no later than October 1 for a January 1 plan year. Employees must also receive an annual election notice each year going forward, giving them the opportunity to set or adjust their deferral amount before the next plan year begins.

These steps should be completed with a CPA or qualified financial professional, not assembled from a downloaded form on a Sunday night. The forms themselves are not complicated, but the decisions that inform them, contribution method, institution selection, employee eligibility, interaction with existing compensation structures, require someone who has done this before. October 1 is a hard date. There is no extension option.

How the SIMPLE IRA Compares to a SEP IRA and Solo 401(k)

If you are evaluating the SIMPLE IRA against other options, a direct comparison is more useful than a general description.

The SIMPLE IRA's 2026 employee deferral limit is $16,500. Employees aged 50 and older can add a $3,500 catch-up contribution. Under SECURE 2.0 provisions now in effect, employees aged 60 through 63 have an enhanced catch-up limit of $5,250. The 2026 traditional 401(k) employee deferral limit is $23,500, which is higher, but the administrative cost difference is significant enough that many small businesses find the SIMPLE IRA more practical despite the lower ceiling.

A SEP IRA allows employer contributions of up to 25% of each eligible employee's compensation, with a 2026 maximum of $70,000. But SEP contributions must go to all eligible employees at the same percentage, and employees cannot make their own salary deferrals. For a sole proprietor or an owner with no other employees, this is often the right answer. For a business with five or ten employees who want to participate actively in their own retirement savings, the SIMPLE IRA's structure, where employees make their own deferral elections, is more practical.

A Solo 401(k) offers high contribution limits and no employees other than an owner-spouse. It is a powerful tool for the right situation. The moment you have a full-time W-2 employee who is not your spouse, it is generally no longer available. Understanding how your entity structure affects retirement plan contribution limits is important context for this decision, particularly for S-corp owners.

On the deadline front, the SIMPLE IRA stands alone: October 1. A Solo 401(k) must be established by December 31 of the tax year. A SEP IRA can be opened as late as your tax filing deadline, including extensions. If you are reading this in September, only the SIMPLE IRA is still on the table for 2026.

The SIMPLE IRA's honest limitations: employer contributions are mandatory every year, and you cannot layer it on top of another qualified plan. Those are real constraints, not footnotes.

What Happens After You Set It Up: Ongoing Obligations in Plain English

Setting up the plan is step one. Running it correctly is everything after that.

Employee salary deferrals must be deposited into individual employee IRAs no later than 30 days after the end of the month in which the amounts were withheld from payroll. If you run payroll in October and withhold employee deferrals, those funds must be in the employees' IRAs by November 30. This is not a soft guideline; late deposits trigger excise taxes and require correction through the IRS Employee Plans Compliance Resolution System, known as EPCRS. The correction process is available, but it is paperwork you do not want.

Employer matching or nonelective contributions must be deposited by your tax filing deadline, including extensions. For most Michigan small businesses, that is either March 15 or April 15, depending on entity type, with the possibility of a six-month extension.

Each year, before the new plan year begins, you must distribute an annual election notice giving employees the opportunity to change their deferral percentages. This is a recurring obligation, not a one-time setup task.

The 1% contribution floor, mentioned earlier, is your pressure valve if business slows down. You can reduce your matching contribution to 1% in two out of any five consecutive years. The notice requirement applies, but the flexibility is there.

For a comprehensive look at other year-end deductions with hard fall deadlines, the SIMPLE IRA sits alongside equipment purchases and other capital decisions that require action before December 31. The difference is that the retirement plan deadline arrives first.

One Thing to Do This Week

Call or email your CPA before Friday and say specifically: "I want to evaluate whether a SIMPLE IRA makes sense for my business before the October 1, 2026 deadline." Not next week. Not when things slow down. This week. The setup process for a SIMPLE IRA is not long, but it requires decisions about contribution method, financial institution, and employee notification that take time to do correctly. October 1 does not move.

If you do not have a CPA or this has not come up in your current relationship, Birchwood Tax & Accounting is a Brighton firm that handles this exact planning. The contact page is the fastest way to start that conversation before the window closes.