Established by employers with 100 or fewer employees* to help them save for the future, a SIMPLE IRA (Savings Incentive Match Plan for Employees) is a salary-deferral retirement plan that allows participants to decide how much they want to save for retirement.
- Pre-tax contributions are deducted from employee’s salary each pay period.
- Reduces taxable income for participating employees.
- Employees can take distributions at anytime.
- Contributions qualify as a business expense for employers resulting in tax savings.
- Businesses earn tax credit on establishing the plan at startup and for the next 2 tax years.
Contribution limits for a SIMPLE IRA are subject to the cost of living adjustments (COLAs).
- 2018 Maximum Contribution: $12,500 to cost of living adjustments (COLA).
- 2018 Maximum Contribution for IRA holders 50 years and older: an additional $3,000.
- Employers are required to contribute to with matching funds or a fixed, non-elective contribution.
- Employee deferral must contribute no later than 30 days after the end of the month in which they were withheld from their pay.
- Non-elective contributions must be made by the due date (including extensions) of the employer’s tax return for the year in which the SIMPLE calendar year ends.
- Early withdrawal (within 2 years) results in 25% penalty tax. Withdrawal before the age of 59½ results in a 10% tax penalty.
A SIMPLE IRA offers benefits to business owners and their employees providing financial savings and a secure future.
*Must have received at least $5,000 in compensation (including elective deferrals under the SIMPLE plan) from the company for the preceding calendar year. Employers currently maintaining another employer sponsored retirement plan (i.e. SEP IRAs, Keogh, 403(a), 403(b), 401(k), 408, 457, or 501) are not eligible.
The above information is provided for educational purposes and is not intended as tax advice. Please consult a tax professional.