A SIMPLE IRA is an employer-sponsored retirement plan that is solely offered to employees through their employer. This type of account is specifically made for small businesses with less than 100 employees. Your employees can only participate in the retirement plan if they have earned $5,000 or more in any two previous years.
Small businesses widely utilize this business retirement account because the setup and the management cost of this account type are low. However, this account type has distinct rules set by the IRS that the account owner must follow to stay qualified.
Understanding the Basics
The appeal of a SIMPLE is that they have minimal paperwork requirements, just an initial plan document and annual disclosures to employees. The employer establishes the plan through a financial institution that administers it. Startup and maintenance costs are low, and employers get a tax deduction for contributions they make for employees.
To be eligible to establish this type of IRA, the employer must have 100 or fewer employees. Those who are self-employed or are sole proprietors are eligible to establish a SIMPLE IRA as well. As stated, to participate in the plan, employees must have earned at least $5,000 in compensation in any two previous calendar years and be expected to make at least $5,000 in the current year. Employers can choose less restrictive participation requirements if they wish. An employer may also choose to exclude from participation employees who receive benefits through a union.
SIMPLE IRA Contributions
The amount that an employee can contribute to their SIMPLE is $14,000 for 2022, and $13,500 for 2021.
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. For 2021 and 2022, the amount is $3,000 on top of the $14,000 afforded to those under 50.
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.
See what other business-backed accounts that Accuplan offers.
Rules and Taxes
According to IRS rules and laws, the business operating this type of IRA cannot employ more than 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 Does Accuplan Improve the SIMPLE IRA?
Accuplan allows you to do more with a SIMPLE IRA. Most retirement accounts, be it a Roth IRA, Traditional IRA, or SIMPLE IRA, rely on stocks and bonds as the investment option. The IRS allows many more asset types than simply stocks and bonds.
With Accuplan Benefits Services, you can set up a self-directed SIMPLE IRA and invest in tangible assets like real estate or gold or paper assets like private equity or loans. A self-directed retirement account allows you to take control of your retirement account and invest in what you want. With us, the possibilities are endless.
Establishing a SIMPLE with Accuplan
First, open an Accuplan account here.
Pick the type of SIMPLE IRA plan that’s intended to use by filing IRS Form 5305-SIMPLE.
Provide eligible employees information about the SIMPLE IRA plan.
Set up separate SIMPLE IRAs for each eligible employee using Form 5305-S or Form 5305-SA.
Learn more about individual self-directed accounts that Accuplan offers.
Frequently Asked Questions
The employer can choose to contribute a flat 2% of salary for each eligible employee regardless of participation or a dollar-for-dollar match of employee salary-deferral contributions capped at 3% of wages. If needed, the cap may be reduced as low as 1% for any two years during a five-year span.
Employees, including business owners, can defer up to $14,000 in 2022 ($16,000 for those age 50 or older) of compensation annually.
Employees who received $5,000 or more in wages in any two calendar years and are reasonably expected to earn $5,000 or more in the current year.
Annual Fee: $349.95
Account Establishment: Fee $50
Interest, dividends, employer contributions, and other investment earnings have the potential to grow tax-deferred until they are withdrawn at retirement.
Employee and employer contributions are 100% vested immediately.