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Retirement Plans for a Home Care Agency with Caregiver Staff

SEP, SIMPLE IRA or 401(k)? For a home care agency, caregiver payroll decides which plan works. Coverage rules and the SIMPLE IRA, SEP and 401(k) adoption deadlines.

Askia Roberts, CPA · GA License #CPA038784 ·

A home care agency owner cannot pick a retirement plan on the owner’s own numbers. Each of the three common small-business plans, a SEP, a SIMPLE IRA and a 401(k), pulls eligible caregivers into the plan, and what the caregivers cost decides which one works. The 2026 date to start a new SIMPLE IRA was October 1; the next window opens January 1, 2027, and a SEP can still be set up for 2026.

Why Caregiver Payroll Changes the Answer

Home care is a payroll business, and most of that payroll is employees who are not owners. The plan rules are written around that fact.

SEP: One Percentage for Everyone Eligible

A SEP is the simplest to set up. The IRS says you can set one up for a year as late as the due date, including extensions, of the business income tax return for that year, and contributions must be made by that same date (IRS, SEP Plan).

The catch is uniformity: “Employer must contribute equally for all eligible employees.” An eligible employee is one who has reached age 21, has worked for the employer in at least 3 of the last 5 years, and received at least the SEP minimum compensation amount, which is adjusted annually for inflation (the amount was $750 for 2025, per Publication 560). Contributions cannot exceed 25% of each employee’s pay, subject to an annual dollar cap. You do not have to contribute every year (IRS, SEP Plan).

SIMPLE IRA: Set a Deadline, Choose a Formula

You can set up a SIMPLE IRA effective on any date from January 1 through October 1 of a year, if you did not previously maintain one. The employer must pick either a 2% nonelective contribution for every eligible employee, whether or not they defer, or a dollar-for-dollar match up to 3% of pay for employees who defer (IRS, SIMPLE IRA plan). It is generally for employers with 100 or fewer employees.

Eligible employees are those who earned at least $5,000 in any two years before the current calendar year and are expected to earn at least $5,000 in the current year. Contributions are always 100% vested. The 2026 employee deferral limit is $17,000, with a $4,000 catch-up for those 50 and over (IRS, 2026 limits announcement).

There is a one-plan rule. A SIMPLE IRA can’t be paired with another plan for the same year if any employee receives an allocation or accrues a benefit under the other plan (IRS, SIMPLE IRA FAQs). An agency already running a 401(k) cannot add one.

401(k): More Flexibility, More Structure

A 401(k) can be adopted by a business of any size. Employees are always 100% vested in their own deferrals, and the 2026 employee limit is $24,500, with an $8,000 catch-up for age 50 and over (IRS, 2026 limits announcement). A plan cannot require more than 1 year of service for deferrals, and it cannot exclude an employee for reaching a specified age (IRS, 401(k) plan overview).

Two structural rules matter for an agency:

  • Coverage. A qualified plan has to benefit at least 70% of non-highly-compensated employees, or meet a ratio test comparing the share of non-highly-compensated employees covered to the share of highly compensated ones (IRC §410(b); IRS, A guide to common qualified plan requirements).
  • Testing or safe harbor. A traditional 401(k) runs annual tests comparing deferrals by highly compensated employees to those of other employees, and a plan that fails must correct within the statutory period or risk its qualified status (IRS, 401(k) plan fix-it guide: ADP and ACP tests). A safe harbor plan avoids these tests by making fully vested employer contributions, either matching contributions for employees who defer or contributions for all eligible employees, and by giving employees notice, generally 30 to 90 days before the plan year begins (IRS, Safe harbor 401(k) plans).

When a Plan Has to Exist

The timing rules differ by plan, and one is easy to get wrong.

  • SIMPLE IRA: January 1 through October 1 of the plan year.
  • SEP: as late as the business return due date, including extensions.
  • 401(k): an employer can adopt a plan retroactively, as late as the due date of its tax return including extensions, for employer contributions. Employee deferrals generally cannot be made retroactively, because a plan is established as of the later of the adoption date and the effective date (IRS, Issue Snapshot: employer contributions after year end). The exception for retroactive deferrals covers only an individual who owns the entire interest in an unincorporated business and is its only employee, so it does not help an agency with caregivers.

A Hypothetical, for the Mechanics Only

Suppose a hypothetical agency has an owner paid $100,000 in W-2 salary and 10 caregivers who all meet a SEP’s eligibility rules, averaging $30,000 in pay each. If the owner chose a 10% SEP contribution, the plan would require 10% of every eligible employee’s pay: $10,000 for the owner and $30,000 in total for the caregivers. The owner’s share is a quarter of the cost of the plan. This illustrates the mechanics of the uniform-percentage rule only. It is not a prediction of any agency’s cost, and actual eligibility depends on hours, age and service dates.

What to Check Before Choosing

  1. Who is eligible under each plan today. Age, service and pay thresholds are different in each, so the counts differ.
  2. Whether another plan already exists. It rules out a SIMPLE IRA.
  3. The date. For a SIMPLE IRA in 2026, October 1. After that, the next window opens January 1.
  4. Turnover. High caregiver turnover moves people in and out of eligibility, which changes the year-end cost.

Sources

Educational content only. Not tax, legal, or investment advice. Tax strategies depend on your specific facts and circumstances. Consult a qualified professional regarding your situation. Past results do not guarantee future outcomes.

Common questions

Can a home care agency owner set up a retirement plan just for themselves?

Not if the agency has eligible employees. A SEP must give every eligible employee the same percentage of pay as the owner, a SIMPLE IRA must include every employee who meets its eligibility test, and a 401(k) must cover a large enough share of non-highly-compensated employees to pass the coverage test. The owner's plan and the caregivers' benefits are one decision.

Which plan has a deadline coming up?

A SIMPLE IRA can be set up effective on any date from January 1 through October 1 of a year, provided the employer did not previously maintain a SIMPLE IRA plan. For 2026, that date was October 1, so a new SIMPLE IRA for 2026 is no longer available; the next window opens January 1, 2027. A SEP can be set up as late as the due date, including extensions, of the business return for the year. A 401(k) generally has to be in place before employees can defer; only the first-year employer contribution can be adopted retroactively.

Do part-time and seasonal caregivers have to be included?

It depends on each plan's eligibility rules. A SIMPLE IRA covers employees who earned at least $5,000 in any two prior years and are expected to earn at least $5,000 this year. A SEP covers employees who are at least 21, have worked for the employer in at least 3 of the last 5 years, and earned at least the SEP minimum compensation amount. A 401(k) cannot require more than 1 year of service for deferrals. Caregiver turnover means the eligible group may be smaller than the payroll list, but that should be checked against actual hours and dates.

Does a 401(k) avoid the cost of covering caregivers?

No. A traditional 401(k) has to pass annual tests comparing what highly compensated employees defer with what other employees defer. A safe harbor 401(k) avoids those tests by requiring employer contributions that vest immediately, which is again a cost tied to eligible caregivers.

Can I have a SIMPLE IRA and a 401(k) at the same time?

Generally no. The IRS says an employer that maintains a SIMPLE IRA plan cannot have another retirement plan for the same calendar year if any employee receives an allocation or accrues a benefit under the other plan.

Educational content only. This article is for general informational purposes and does not constitute tax, legal, or financial advice. Tax outcomes depend on your specific facts, circumstances, entity structure, and applicable law. Consult a qualified professional before acting on any information here.

Price the caregiver side of a retirement plan before you adopt it.

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By Askia Roberts, CPA · GA License #CPA038784 · RTW Advisors

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