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How to Correct SIMPLE IRA Errors Using the Voluntary Correction Program (VCP)

When a SIMPLE IRA mistake cannot be corrected under the Self-Correction Program (SCP), the IRS requires employers to use the Voluntary Correction Program (VCP). VCP is a formal submission process through Pay.gov that allows the employer to disclose the mistake to the IRS, receive approval for the correction, and ensure the plan remains compliant.

This article provides the full VCP procedure step-by-step, including required forms, documents, fees, and what happens after submission.
 

When You Must Use VCP

Submit a VCP application if:

• You want to leave excess employer contributions in an employee’s SIMPLE IRA.

• The mistake is significant or affected multiple years.

• You do not qualify for SCP because written procedures were not followed or not in place.

• You want IRS approval to protect the plan during future audits.

 

VCP Procedure (Step-by-Step)

The steps below outline exactly how to complete a VCP submission for SIMPLE IRA errors.

 

Step 1: Identify and Document the Error

Before completing any forms or submitting anything to the IRS, the employer must prepare a complete record of the issue.

Document:

• What the mistake was

• When it occurred

• Which employees were affected

• Dollar amounts involved (over- or under-contributions)

• Whether excess funds will remain in employee IRAs

• Whether any administrative procedures existed at the time

This documentation will be included in the VCP submission.

 

Step 2: Complete Required IRS Forms

The IRS requires two specific documents:

1. Form 14568 – Model VCP Compliance Statement

   • Describes the mistake

   • Identifies affected employees

   • Proposes the correction method

2. Form 14568-D – Schedule 4 for SIMPLE IRA Plans

   • Used specifically for SIMPLE IRA plan failures

Both forms must be filled out completely and uploaded to Pay.gov.

 

Step 3: Prepare the Correction Method Explanation

Your submission must clearly explain:

• How the employer will fix the error

• How missed contributions will be restored

• How earnings will be calculated and credited

• Whether excess contributions will stay in the IRA

• Why VCP is required

• Any supporting payroll or contribution records

IRS expects precise, documented steps—not general statements.

 

Step 4: Determine the VCP User Fee

The VCP fee depends on the total value of all IRAs maintained under the SIMPLE IRA plan.

The employer must:

• Determine the total asset value

• Refer to the IRS fee chart

• Calculate the correct fee

The fee is paid through Pay.gov during submission.

 

Step 5: Create or Log In to a Pay.gov Account

To submit a VCP application, the employer must:

1. Visit Pay.gov

2. Create or log into an account

3. Verify the account if creating one for the first time

4. Navigate to begin a new IRS VCP submission

 

Step 6: Locate the Correct VCP Submission Form on Pay.gov

On Pay.gov, search for:

“IRS VCP Submission for Retirement Plans”

This is the electronic form used to send all documentation and payment to the IRS for VCP.

 

Step 7: Upload All Required Documentation

The employer must attach:

• Completed Form 14568

• Completed Form 14568-D

• Supporting documentation:

  • Payroll reports

  • Contribution calculations

  • IRA balance statements

  • Correction calculations

  • Proof of administrative procedures

  • Written explanation of the error

  • Reason excess contributions are being left in IRAs (if applicable)

The IRS expects full transparency and clear evidence.

 

Step 8: Enter Payment Information

Enter:

• Employer name

• EIN

• Contact information

• The calculated VCP fee

• Payment details

Submit payment through Pay.gov.

 

Step 9: Submit the VCP Application

After all documents and payment details are entered:

• Submit the application

• Download and save the submission receipt

• Save a copy of every uploaded document

The IRS may request additional information later.

 

Step 10: IRS Review and Follow-Up

After submission:

• The IRS reviews the application

• IRS agents may request clarification or additional details

• The employer must respond promptly and accurately

The IRS will not issue approval until all questions are resolved.

 

Step 11: Receive the IRS Compliance Statement

Once approved, the IRS issues a formal Compliance Statement.

This document:

• Confirms VCP approval

• Describes required corrective actions

• Protects the plan from disqualification

Employers must follow the instructions exactly.

 

Step 12: Perform the Corrective Actions

After receiving IRS approval, employers must:

• Make corrective contributions

• Remove or retain excess amounts as approved

• Calculate and deposit lost earnings

• Update internal records

• Notify affected employees

• Maintain proof of all corrections

If excess amounts remain in IRAs, the employer must also pay:

 An additional IRS amount equal to at least 10% of the excess contributions

 

Step 13: Maintain All Records

Keep detailed records for IRS audit purposes, including:

• Submitted forms

• Supporting documents

• Compliance statement

• Corrective contribution proof

• Updated administrative procedures