SIMPLE IRA Plans for Small Businesses
Offering a retirement plan to employees of your small business can help you attract and keep workers. With a SIMPLE IRA, employees contribute to retirement savings, and the employer adds matching funds. SIMPLE stands for Savings Incentive Match Plan for Employees. SIMPLE IRA plans cost little to set up and don't require a lot of paperwork. They help employees build retirement savings and offer some tax advantages.
Other People Are Reading
-
Eligibility
-
Any employer who has fewer than 100 employees can set up a SIMPLE IRA, provided the employer doesn't have another retirement plan in place. To participate, employees have to earn at least $5,000 in a tax year, so part-time as well as full-time workers are eligible. As the employer, you set up the plan and give your employees information about it. Employees elect whether they want to make contributions. You can decide whether you want to contribute for all employees, regardless of whether they make contributions, or match funds only for those employees who contribute their own funds as well.
Set Up
-
To set up your SIMPLE IRA, you, as the employer, need to choose a financial institution to handle the funds. The financial institution invests the funds as instructed by employees, helps you handle enrollment, and makes the appropriate tax reports. Many banks and investment companies have SIMPLE plans already in place. You can choose the plan you like and fill out paperwork the financial institution provides. The institution, in turn, provides you information to pass on to your employees that describes the plan, employee investment options and enrollment instructions. When you establish the plan, you need to state whether you will either contribute 2 percent of each employee's salary to the fund annually, regardless of whether the employee puts in his own money, or match employee contributions up to 3 percent of the employee's pay. You can choose a different option each year if you like, as long as you inform your employees of your choice. You indicate your choice on the required paperwork for establishing the plan.
-
Enrollment
-
Employees can sign up for your SIMPLE during an enrollment period each year. This enrollment period, known as the election period, must extend from November 2 to December 31 each year, but you may have additional 60-day election periods during the year, if you desire. During the election period, the employee decides how much she wishes to contribute each pay period to the SIMPLE. You deduct these funds before computing income taxes, but the funds are subject to Social Security and Medicare taxes. You're responsible for forwarding the funds to the financial institution for deposit in the employee's account. You must forward the funds to the financial institution no later than 30 days after the end of the month in which you withhold the funds from the employee's paycheck. The IRS establishes a maximum amount the employee may contribute in a given year, and the IRS may change the amount from year to year. Employees over age 50 can make additional contributions known as catch-up amounts. Employees can change their elections during each election period, if they desire, by filling out new paperwork. Each employee can log into his account and choose from investment options offered by the financial institution.
Paperwork
-
After you fill out the forms to establish your SIMPLE, you have little paperwork. You must inform employees of the opportunity to participate in your SIMPLE and send new notification each year during the election period. You complete paperwork to alert the financial institution to new employees who wish to participate in the SIMPLE. You don't have to file any reports to the IRS about your SIMPLE. The financial institution takes care of reports regarding distributions from the plan. You must keep track of contributions and send them to the financial institution in a timely manner.
-
