Broker Check

Simple IRAs

Are you a small business owner who is looking to set up a retirement plan for you and your employees that is easy to administer?

The SIMPLE IRA (Savings Incentive Match Plans for Employees), established by the Internal Revenue Service for 1997, is a tax-deferred retirement plan designed to fit the needs of small business owners. It is easy to set up and administer and is not subject to complicated government reporting or filing requirements including anti-discrimination monitoring and disclosure requirements. Earnings in a SIMPLE IRA are tax-deferred, allowing them to grow at a faster rate.

SIMPLE IRA qualifications that need to be met by a business owner include:

  • 100 or fewer employees, with a minimum of one.
  • SIMPLE IRA must be the only qualified retirement plan in a calendar year.

In order to be eligible, employees must meet the following criteria:

  • Have two years of service during which they earned at least $5,000 per year.
  • Are expected to earn at least $5,000 in current year.

Employer contributions are required in a SIMPLE IRA.

There are two options for contributing to your employees' SIMPLE IRAs: matching and non-elective. The option you select must encompass all of your employees.

Under a matching contribution you match the amount, up to 3%, participating employees contribute to their SIMPLE IRA. If an employee chooses not to contribute to the plan, neither do you. An employer may reduce the contribution amount down to 1%, but the reduction must be applied equally to all employees and is allowed for no more than two years out of a five-year period. Employees must be notified of the reduction prior to the election period.

The 60-day election period is when eligible employees get to choose what percentage or dollar amount of their compensation they want to contribute to their account. Employees may make a pre-tax contribution up to $10,000 to a SIMPLE IRA in 2005. The contribution limit is subject to future cost-of-living adjustments.

All of the employer and employee contributions are immediately vested.

Under a non-elective contribution, whether or not the employee participates in the SIMPLE IRA, you contribute 2% of each eligible employee's compensation, up to $4,200 in 2005.

Contributions an employer makes to an employee's SIMPLE IRA, including yourself, are deductible as legitimate business expenses for federal tax purposes, within limits established by IRS Code.

Distributions and Withdrawals

  • Participants are allowed to begin taking distributions, penalty-free, at age 59-1/2.
  • Participants must begin taking distribution by age 70-1/2.
  • Loans from a SIMPLE IRA are not allowed.
  • Withdrawals from a SIMPLE IRA are allowed at any time; however, IRA rules apply. If the
  • withdrawal is within the first two years of participation, there is a 25% penalty. Withdrawals prior to age 59-1/2 are subject to a 10% tax penalty.

We offer a full portfolio of retirement planning options for small businesses. Our financial services professionals can help you identify which options suit your business needs.