Daycare Center Retirement Plans: SIMPLE IRA for Staff-Heavy Centers and the Employer Contribution Credit

By Yarik Yarosh, CPA ·September 5, 2026 ·2 min read

Written by Yarik Yarosh, CPA (US & Canada) September 5, 2026 · FL CPA license AC61704 · CPA Ontario

Daycare centers are staff-heavy businesses with 8-20+ employees, making retirement plan selection different from a one-person service business. The SIMPLE IRA is typically the best fit: it has low administrative costs, no complex nondiscrimination testing, and the mandatory employer match is modest (up to 3% of compensation). The SECURE 2.0 tax credits make the first 3-5 years of a new plan nearly free.

✓Key takeaway

Why SIMPLE IRA works for daycare centers:

Low administrative cost: $0-$500/year to maintain (no annual 5500 filing required for SIMPLE IRAs)
Simple employer obligation: Match employee contributions dollar-for-dollar up to 3% of each employee’s compensation (can be reduced to 1% for 2 of 5 years), or make a 2% non-elective contribution for all eligible employees
Employee eligibility: Employees who earned $5,000 in any 2 prior years and expect to earn $5,000 in the current year
Employee deferral limit: $16,500 (2025), which allows the owner to shelter meaningful income
No nondiscrimination testing: Unlike a traditional 401(k), the SIMPLE IRA doesn’t require testing to ensure the plan does not disproportionately benefit highly compensated employees

How much does the SECURE 2.0 credit offset the cost?

Hypothetical example

Round numbers. A daycare center with 10 employees (plus the owner) establishes a new SIMPLE IRA with a 3% employer match.

Employee participation (8 of 10 eligible employees contribute):

Average employee salary: $32,000
Average contribution: $960 (3% of salary)
Employer match per participating employee: $960
Total employer match: 8 x $960 = $7,680

SECURE 2.0 credits:

Startup cost credit: $5,000/year (first 3 years)
Auto-enrollment credit: $500/year (if auto-enrollment added)
Employer contribution credit: $1,000 per employee x 8 participating = $8,000 (Year 1-2), $6,000 (Year 3, 75%), $4,000 (Year 4, 50%), $2,000 (Year 5, 25%)

Year 1 net cost:

Employer match: $7,680
Less startup credit: -$5,000
Less employer contribution credit: -$7,680 (capped at actual contributions)
Net cost to employer: approximately $0 (the credits fully offset the match cost)

Owner’s personal contribution:

Owner salary: $55,000
Owner SIMPLE deferral: $16,500
Employer match: $1,650 (3% of $55,000)
Total owner retirement savings: $18,150
Tax savings: $18,150 x 32% = $5,808

Illustrative numbers only, not a real client and not advice for your facts.

The SECURE 2.0 credits make the SIMPLE IRA effectively free for the first 2 years and heavily subsidized through Year 5. The owner also benefits from personal retirement contributions that reduce their own tax liability.

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Cite this page

Yarik Yarosh, CPA. "Daycare Center Retirement Plans: SIMPLE IRA for Staff-Heavy Centers and the Employer Contribution Credit." Blue Cloud CPA, September 5, 2026. https://bluecloudcpa.com/guides/daycare-center-retirement-plans

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.