A Savings Incentive Match Plan for Employees (SIMPLE) IRA is an employer-sponsored retirement plan solely offered to employees through their employer. This type of account is specifically made for small businesses with less than 100 employees. Employee participation can depend on their income in the past two years.
Small businesses widely utilize this type of retirement account because its setup and management costs are low. However, the IRS sets distinct rules for this account type that the account holder must follow to stay qualified.
Understanding the Basics
A major appeal of a SIMPLE IRA for small businesses is the minimal paperwork, requiring only the initial plan document and annual disclosures to employees. The employer can establish a plan with a dedicated financial institution.
Overall, startup and maintenance costs are lower than alternative IRA options. Employers can also take advantage of a tax deduction for their contributions through employer match.
Small businesses with 100 or fewer employees are eligible for a SIMPLE IRA. Self-employed or sole proprietors are also eligible. Employers can have a say in the restrictive participation requirements and choose to deny participation to employees with union benefits.
SIMPLE IRA Contributions
SIMPLE IRA employee contributions can vary from year to year. Employers must provide updated amounts based on contribution type — catch-up or employer-match contributions.
Catch-Up IRA Contributions
If an employee or the employer is age 50 or over, catch-up contribution eligibility opens. Persons over 50 years old are allowed to contribute more money to their SIMPLE. This contribution type helps individuals who had to delay their contributions or started saving late for retirement.
Employer-Match Contributions
SIMPLE IRAs require employers to match their employee’s contributions. The match portion goes as follows:
- Up to 3% of your employee’s compensation
- At least 1% for no more than two out of five years
The company contributes to all employees, even if they don’t contribute to the SIMPLE themselves. Note that your business can also make a 2% non-elective contribution to each of your employees’ SIMPLE accounts.
Accuplan offers other business-backed accounts to benefit your small business and employees.
Rules and Taxes
According to IRS rules and laws, the business operating this type of IRA can employ up to 100 employees.
All contributed retirement funds grow at a tax-deferred rate. However, upon retirement, distributions are taxed as income and are subject to a percentage being withdrawn by the IRS.
How to Establish a SIMPLE IRA Plan With Accuplan
Accuplan Benefits Services can help you set up a self-directed SIMPLE IRA and invest in tangible assets. Follow these steps to get started:
- Open an Accuplan account: To set up your account, fill out an online form. The form will ask for your basic company information, security information and identity verification to keep your account safe.
- Pick the type of SIMPLE IRA plan: You will then need to file an IRS Form 5305-SIMPLE and pick the type of plan you need. This form will ensure that all your business’s contributions toward employee IRAs will be deposited at your designated financial institution.
- Provide information to employees: After the initial plan is set up, you will need to give the SIMPLE IRA plan information to the eligible employees. From here, they must prepare their information for their individual IRAs.
- Set up separate SIMPLE IRAs: Each employee will need their own SIMPLE IRAs. You will need to use Form 5305-S or Form 5305-SA — Accuplan can help you determine which you need.
Contact Our Experts for More Information
You can help your small business employees take charge of their retirement with us. Accuplan can assist you with setting up a SIMPLE IRA plan for each of your employees. Contact us for more information or to learn more about the individual self-directed accounts that Accuplan offers.
Frequently Asked Questions
Employers can choose a flat 2% of an employee salary for each eligible member, even if the dollar-for-dollar match is capped at 3%. The cap may also be reduced to 1% for two chosen years within five years.
Employee contribution limits vary depending on the contribution year and eligible compensation. For the most current limits, contact Accuplan.
Employees who received at least $5,000 in two calendar years and will earn at least $5,000 in the current year can participate in a SIMPLE IRA plan.
Accuplan’s fees:
Annual Fee: $349.95
Account Establishment: Fee $50
Through a SIMPLE IRA, employees can benefit from interest, employer contributions, dividends and investment earnings. They can also grow their IRA to a tax-deferred plan until withdrawn at retirement.
Yes — contributions from employees and employers are entirely and immediately vested.