The October 1 Deadline: What Central PA Small Businesses Should Know About Starting a Retirement Pla

The October 1 Rule: What Central PA Small Businesses Should Know Before Choosing a Retirement Plan for 2027

By Tucker P. Nicholas, Private Wealth Advisor at PAC Financial, Harrisburg, PA. August 2026.

Key takeaways:

• A new SIMPLE IRA can take effect on any date between January 1 and October 1 of a year, so October 1, 2026 is the last day a plan can start in 2026. For most businesses beginning the conversation this fall, the realistic project is a January 1, 2027 start, and the work for it happens now.
• Federal tax credits can offset the cost of a first plan, in some cases substantially: up to $5,000 per year for three years in startup costs, up to $1,000 per employee for employer contributions, and up to $500 per year for automatic enrollment, all claimed on IRS Form 8881 and all subject to eligibility rules.
• Businesses already running a 401(k) can convert to a SIMPLE IRA only at a calendar-year line: employee notice by November 2, 2026, plan termination by December 31, new plan live January 1, 2027. Startup credits generally do not apply to conversions.
• SIMPLE IRA plans are exempt from the top-heavy rules and do not run annual ADP discrimination testing, which is why they are worth a look for owner-heavy businesses whose 401(k) keeps refunding the owner's own contributions.

PAC Financial is a third-generation financial advisory firm at 5291 Devonshire Road in Harrisburg, Pennsylvania, founded in 1972, serving business owners and families across Central Pennsylvania. Questions about a retirement plan for your business? Call (717) 564-6400.

Ask a Central Pennsylvania business owner what keeps them up at night in 2026 and the answer is rarely the work. It is the people: finding them, keeping them, watching a good one leave for an employer down the road whose offer looked almost identical except for one line in the benefits paragraph. Here is the line. Fewer than 60% of workers at the smallest private employers have access to a workplace retirement plan, according to the Bureau of Labor Statistics. Meanwhile, one industry survey found that about 94% of small business owners say a retirement plan matters for attracting and keeping employees. Most owners assume closing that gap means a 401(k), with the testing, the filings, and the administrative bills that come with one. For businesses with 100 or fewer employees, there has been a simpler tool sitting in the tax code since 1996, Washington is currently offering to offset the cost of adopting it, and the calendar for putting one in place, whether that is a late-2026 start or a clean January 1, 2027 launch, runs through this fall. The rest of this page walks through how it works, what it costs, when it does not make sense, and why the testing rules that quietly punish successful owners inside a 401(k) do not follow them here.

What is a SIMPLE IRA and how does it work?

A SIMPLE IRA is a workplace retirement plan built for businesses with 100 or fewer employees: employees defer part of each paycheck into their own IRA, the employer contributes either a dollar-for-dollar match up to 3% of pay or a flat 2% for every eligible employee, and the plan runs without the annual testing and federal Form 5500 filing that a 401(k) requires. For 2026, employees can defer up to $17,000, or $18,100 at employers with 25 or fewer employees, with an additional $4,000 catch-up for workers 50 and older and a higher $5,250 catch-up for those aged 60 to 63; limits adjust annually. Employers who want to do more can add an optional contribution of up to 10% of compensation, capped at $5,300. Every dollar an employee defers belongs to them immediately, in their own account, which is a sentence worth saying in a job interview.

When is the deadline to start a SIMPLE IRA?

The rule is October 1: a new SIMPLE IRA can be made effective on any date between January 1 and October 1 of a year, provided the business has not maintained a SIMPLE plan before, so October 1, 2026 is the last day a plan can begin in 2026. What that means depends on which owner is reading this. A business that moves quickly this month can still get a 2026 start in under the wire, and with it the first credit year on this year's return. A business that starts the conversation in September or October is really planning a January 1, 2027 launch, and that project has its own fall calendar: decisions made by early October, the 60-day employee notice window opening November 2, accounts and payroll connected before the holidays swallow everyone's attention. Either way, the fall decides whether 2027 arrives with a plan or with another year of the same benefits paragraph. Nothing terrible happens to a business that waits, except everything waits with it: the first deferrals, the first match, the credit clock, and whichever good employee was quietly comparing offers in the meantime.

What tax credits can a small business get for starting a retirement plan?

Three federal credits, all claimed on IRS Form 8881, can offset the cost of a first plan, and because they are credits rather than deductions, they reduce the tax bill dollar for dollar:

Amounts shown are maximums; eligibility rules apply to each credit, costs claimed as credits cannot also be deducted, and businesses employing a military spouse may qualify for an additional credit of up to $500 per year. Source: Instructions for IRS Form 8881 (Rev. December 2025); IRS, Retirement plans startup costs tax credit. Consult a qualified tax professional regarding your circumstances.

For a sense of scale: a qualifying shop with 20 eligible non-highly compensated employees could see a startup credit of up to $5,000 per year for three years, before the contribution credit is even counted. Whether your numbers look like that depends entirely on your headcount and costs, which is exactly the conversation to have with your tax professional, and one we will gladly sit in with you. The numbers only matter if they are your numbers.

Can a business switch from a 401(k) to a SIMPLE IRA?

Yes, and for some businesses it is the right move, though the honest version of this answer has three parts. First, the mechanics: a business cannot run both plans in the same calendar year, so a conversion happens only at the year line, with employee notice by November 2, 2026, termination of the 401(k) by December 31, and the SIMPLE IRA live January 1, 2027. Second, the appeal: compared with many small 401(k) arrangements, a SIMPLE IRA typically involves less paperwork, lower administrative cost, and fewer moving parts, with no annual discrimination testing, no federal Form 5500, and, new for 2026, none of the Roth catch-up administration that 401(k) sponsors now handle for higher earners, since SIMPLE plans are exempt from that mandate. Third, the trade-offs, stated plainly: the 401(k) deferral limit is higher, $24,500 versus $17,000 for 2026, the startup tax credits generally do not apply when a plan existed within the prior three years, and businesses that value plan loans, profit-sharing flexibility, or vesting schedules may be better served keeping the 401(k) they have. Our side-by-side comparison page goes deeper on the cost math. The right answer is a payroll-by-payroll calculation, not a slogan, and a meaningful share of the owners who ask us this question end up keeping their 401(k) after seeing the comparison.

Can a SIMPLE IRA fix a top-heavy 401(k)?

For some owner-heavy businesses, yes, and this is the conversation almost nobody is having with them. A 401(k) is considered top-heavy when key employees, generally owners and certain officers, hold more than 60% of the plan's assets, which is the natural condition of a small shop where the owner saves seriously and a young crew saves a little. Top-heavy status is not a scolding; it is a bill: the employer generally must make a minimum contribution, up to 3% of compensation, for non-key employees. A related and even more familiar sting is the annual ADP test, which compares what higher-paid employees defer against everyone else, and when it fails, the fix is corrective refunds: the plan hands the owner's own contributions back, as taxable income, sometimes every single year. Owners tend to describe the experience the same way: penalized for saving in the plan they pay to sponsor.

The SIMPLE IRA sidesteps this entire category of problem by statute: SIMPLE plans are exempt from the top-heavy rules under Section 416(g)(4)(G) of the tax code, and there is no ADP test to fail, because the deal is struck up front, a required employer match or nonelective contribution for everyone, vested immediately. The balanced version of this answer, because there is one: a safe harbor 401(k) also satisfies the testing requirements while keeping the higher deferral limits, at the price of its own required contributions and the 401(k)'s administrative overhead. Which tool wins depends on the payroll, the headcount, and what the owner is actually trying to put away, and that is a calculation with real numbers in it, not a coin flip. If your plan's testing letter has been arriving with a refund check stapled to it, bring the letter to the meeting. It usually settles the question faster than we can.

What are the downsides of a SIMPLE IRA?

Three, and any owner deciding this deserves them up front. The employee deferral limit is meaningfully lower than a 401(k)'s, which matters for owners and key employees trying to save aggressively past the SIMPLE caps. Withdrawals within an employee's first two years in the plan face a 25% additional federal tax rather than the usual 10%, a rule employees need to hear before they enroll, not after. And the employer contribution is required every year the plan runs, match or nonelective, in good years and slow ones. A SIMPLE IRA is the right tool for a lot of businesses under 100 employees; it is not the right tool for all of them, and a plan that fits the payroll is worth more than a plan that fits the brochure.

Do Trump Accounts change the math for small business owners?

They add a new option worth knowing about. Beginning in 2026, employers can contribute up to $2,500 per year toward employees' Trump Accounts, the new federally seeded savings accounts for children, and those employer contributions are excluded from the employee's federal taxable income. Department of Labor guidance has indicated these programs are generally not treated as employee pension benefit plans under ERISA, and Pennsylvania's preliminary guidance treats employer contributions as taxable compensation for PA purposes, so the state picture differs from the federal one. For an owner competing for workers with young families, a retirement plan plus a Trump Account contribution is a benefits story very few competitors in Central Pennsylvania are telling yet. Our Trump Accounts page covers the details.

How does a business owner know if a retirement plan makes sense for next year?

Five questions, answerable from memory in about two minutes:

• In the last two years, has a good employee left for an employer with better benefits? If yes, you already know what the sign-on bonus math ignores: replacing a trained person costs more than retaining one.
• When candidates ask about benefits in interviews, what is the current answer? If the answer involves changing the subject, that is the gap this page is about.
• Do you know what a plan would actually cost your business after the credits? Not the sticker number, the net number. Most owners have never seen it calculated for their own payroll.
• If you already sponsor a 401(k), did last year's testing letter come with a refund or a required contribution notice? If yes, the top-heavy section above was written about your plan.
• If the answer to any of these stung a little, what does waiting until January cost? October 1 decides whether a plan can still start this year at all, and the fall calendar decides whether January 1, 2027 arrives with one.

Owners who come back clean on all five genuinely do not need a meeting, and some businesses, especially the smallest ones with family-only payrolls, are served fine by an owner-side IRA and nothing more. The owners who winced at one or two of them are the ones the fall calendar is quietly working against.

Download the guides

We built two plain-English guides on exactly this topic, one for each situation, and both are the complete versions reviewed for use with Pennsylvania businesses. Pick the one that matches your shop:

• SIMPLE IRA Guide for Businesses Without a Retirement Plan (PDF) : the tax credits, the current limits, the establishment timeline, and what the first year looks like, for businesses starting from zero.
• SIMPLE IRA Guide for Businesses Considering a Switch from a 401(k) (PDF)  the cost and administration comparison, the November-to-January conversion calendar, and the honest cases where keeping the 401(k) wins.

Read the one that fits, hand it to your bookkeeper or your spouse or whoever else weighs in on decisions like this, and then, if the numbers deserve a real calculation, the ask is small: one meeting. Bring your payroll headcount, and if you have one, the plan's last testing letter; we bring everything else. If the math does not work for your shop, you will hear that from us in the same meeting, because a plan that fails in year two helps nobody, least of all us. Call (717) 564-6400, or send an email tonight; it will be on our desk in the morning.

Talk to a Central Pennsylvania advisor about small business retirement plans

Tucker P. Nicholas, Private Wealth Advisor
(717) 564-6400 ext. 181 | tnicholas@osaicwealth.com

Stephen A. Marrazzo, Private Wealth Advisor
(717) 564-6400 ext. 101 | smarrazzo@osaicwealth.com

PAC Financial | 5291 Devonshire Road, Harrisburg, PA 17112 | www.pacfinancialfirst.com

About the author

Tucker P. Nicholas is a Private Wealth Advisor at PAC Financial in Harrisburg, Pennsylvania, a third-generation family firm founded in 1972. He holds Series 7 and Series 66 registrations and is registered in Pennsylvania, Colorado, and Delaware. Verify his registration on FINRA BrokerCheck or connect on LinkedIn.

Sources

• IRS, Retirement Plans FAQs regarding SIMPLE IRA Plans; IRS Publication 4334, SIMPLE IRA Plans for Small Businesses; IRS Notice 2025-67 (2026 retirement plan limits)
• Instructions for IRS Form 8881 (Rev. December 2025); IRS, Retirement plans startup costs tax credit
• Internal Revenue Code Section 416 (top-heavy rules), including the SIMPLE plan exemption at Section 416(g)(4)(G)
• U.S. Bureau of Labor Statistics, National Compensation Survey, March 2025 (retirement plan access by employer size)
• Ubiquity Retirement + Savings, survey of 1,000 U.S. small business owners, October 2025
• U.S. Department of Labor guidance on Trump Accounts; Pennsylvania Department of Revenue preliminary guidance (Answer ID 4264)

This material is for informational purposes only and should not be construed as specific investment, tax, or legal advice or a recommendation. Tax credits described are subject to eligibility requirements under federal law and are claimed on IRS Form 8881; amounts shown are maximums and individual results vary. Startup credits generally are not available where the employer maintained a plan covering substantially the same employees within the prior three years. Top-heavy and nondiscrimination testing outcomes depend on plan design and employee demographics; whether a SIMPLE IRA, safe harbor 401(k), or other arrangement is appropriate depends on individual circumstances. PAC Financial does not provide tax or legal advice; consult a qualified tax professional regarding your circumstances. Rules, limits, and credit amounts are subject to change and to future legislation and regulation. Pennsylvania tax treatment of Trump Account employer contributions reflects preliminary guidance and may change. Securities and advisory services offered through Osaic Wealth, Inc., member FINRA/SIPC. PAC Financial and Osaic Wealth are separately owned and other entities and/or marketing names, products or services referenced here are independent of Osaic Wealth. Insurance services offered through PAC Financial, which is not affiliated with Osaic Wealth, Inc. This communication is intended for residents of Pennsylvania. Check the background of your financial professional on FINRA's BrokerCheck.