IRS Publication 560, Explained in Plain English

The IRS Publication 560, "Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans)" is the IRS's annually updated master reference for employer sponsored retirement plans.^[1] It is a single document with an explanation of how to set-up and operate a SEP IRA, a SIMPLE IRA or a qualified plan such as the 401(k): who qualifies, what you may contribute, what you may deduct, and what happens if you do it wrong. Accountants will read all of it. Owners typically will need only the chapter on the type of plan that they are using, and this summary will help identify which parts of each section are most important.

What is IRS Publication 560?

Every year, the Internal Revenue Service (IRS) publishes Pub 560 with the updated dollar limits and new rules for that tax year.^[1] Pub 560 is the closest thing to an official owner's manual for employers of their retirement plans. This is the document your accountant will use when checking on your SIMPLE IRA's match rules or what the limitation is on your SEP deductions. There are two important things to remember. The document is NOT a Form: You will never submit Pub 560. AND it IS NOT the Plan Document. A Simple Individual Retirement Account (SIMPLE IRA), for example, can be established using Form 5304-SIMPLE or 5305-SIMPLE, not by anything in Pub 560.

What is inside Publication 560, chapter by chapter?

Publication 560 is arranged by plan type, beginning with plan definitions, followed by a chapter on SEP Plans, a chapter on SIMPLE IRA plans, a chapter on Qualified Plans and ending with the Self-Employed Deduction Worksheets.^[2] While most owners will only use one of these chapters and the Worksheets, the Definitions section has more impact than it appears to because words such as "Compensation," "Earned Income," etc., have very specific meanings for all calculations throughout the book and most owner errors stem from their use in an everyday context. Here is the full map:

If you are deciding between plan types rather than administering one, our comparisons do the same job faster: SEP IRA vs. SIMPLE IRA and the broader small-business retirement plans overview.

How does the self-employed deduction math work?

The most widely recognized part of Pub 560 is the Rate Worksheet for Self-Employed Individuals.^[2] As a Sole Proprietor or Partner contributing to their own SEP or SIMPLE IRA, you can't just take the stated percentage of the Plan and apply it to Net Profit as if you were an employee receiving Wages. There are two adjustments that will cause problems: Your "Compensation" is your Net Earnings from self-employment minus the deductible half of your self-employment tax, and the Contribution you make reduces the Compensation Base it is calculated on. Pub 560 provides an Effective Reduced Rate to be applied to your Adjusted Net Earnings. This can easily become miscalculated manually and thus this Worksheet is the primary reason an Owner goes into Pub 560. Our self-employed IRA contribution limits guide addresses the Practical Outcomes without the need for a Worksheet. The Owner's Salary Deferral Contributions under a SIMPLE IRA, a flat dollar election of up to $17,000 in 2026,^[3] do not require a Worksheet, because only Employer Contributions subject to Percentage-Based Rates are subject to the Reduced-Rate Math.

Who actually needs to read Pub 560?

Your accountant: YES, for deduction limits, the self-employed worksheets, and edge cases. You, the owner: mostly NO. If you are sponsoring a SIMPLE IRA, the operative rules can be summarized as follows: 100 or fewer employees earning $5,000 plus, deferrals up to the annual limit, a 3% match or a 2% nonelective, deposits within 7 business days, a Notice by November 1 each year, and NEW PLANS BY OCTOBER 1. See SIMPLE IRA Rules for Employers for the complete list.

What does Pub 560 say about the startup tax credit?

Pub 560 points out a credit which puts real money on the table, the startup tax credit that offsets the expense of starting a plan.

• The startup tax credit: A business employing 50 people or less may claim 100% of plan administration costs, up to $250 per eligible non-owner employee per year (maximum $5,000), for each of the first three (3) years.^[4] For a lot of small teams that credit covers most of what a SIMPLE IRA costs to run.
• Corrections occur elsewhere: Pub 560 provides no guidance in correcting your plan errors. Any missed matching contributions or late deferral deposits are processed under the IRS Employee Plans Compliance Resolution System (EPCRS) and the account is made whole again rather than risking disqualifying your retirement plan entirely.

The only paperwork required from the employer is one plan document at startup and a W-2 form as part of yearly reporting (deferrals in Box 12, Code S), with NO Form 5500 reports that need to be completed each year, unlike a 401(k).

Where do you get Publication 560?

Publication 560 is free at irs.gov.^[2] To find this (the one for the relevant tax year), search "Publication 560", and click on the link to download that year's version of the PDF. Verify that the version of the document corresponds with the tax year you're calculating for, because those dollar limits do change from year-to-year. Older years' versions remain available, which is why it matters when you're amending an older return. Pub 560 makes you compute your own numbers by hand: deferral limits, matching true-up amounts, deposit due-dates, notice dates, etc., as well as the tax-credit paperwork. IRAPilot will walk you through all of these steps for free, preparing the paperwork, tracking the deadlines, and showing you exactly what to enter. However, the manual is still a great reference tool...just not where you want to go for compliance!

The Bottom Line

IRS Publication 560 is the annual owner's guide for SEP, SIMPLE and qualified employer-sponsored plans. The Publication 560 covers eligibility requirements, contribution rules, how much can be deducted, the self-employed rate worksheet, and the startup credit. Accountants read all of it. Most owners will simply review one chapter, which is a lot easier when using automation to meet compliance instead of doing homework. Always make sure to get the correct edition for your tax year. Dollar limits vary by tax year.

This guide is educational and summarizes IRS rules for SIMPLE IRA plans. It is not investment, legal, or tax advice. Your plan documents and current IRS limits control. Talk to your tax advisor about your business's circumstances.