Simple IRA

Overview

A Simple IRA is used by owners looking to provide a retirement benefit to their employees (and themselves) with minimal administrative work required. The employer has only two options in terms of contributing to their employees retirement (i) match employees' contributions up to 3% of compensation or (ii) simply contribute 2% of employees compensation (regardless of whether employees contribute). Employees are limited to saving up to $12,500 or $15,000 if over 50 years old. The SIMPLE IRA provides similar characteristics as a full 401(k) but is significantly cheaper to setup and maintain and therefore is typically more suitable for small businesses.  

Primary User

  • Businesses with 100 or fewer employees and self-employed individuals
  • Available to sole proprietors, partnerships, LLCs, C corps and S Corps

Advantages

  • Salary deferral plan with less administration
  • Allows employees to contribute and employer to match
  • Wide range of investment choices

Who Can Contribute

  • Funded by employee deferrals and employer contributions

2016 Employer Contribution Limits

  • Either match employee contributions up to 3% of compensation (can be reduced to 1% in any two out of five years) or contribute 2% of each employee's compensation, up to $5,000

2016 Employee Contribution Limits

  • Up to $12,500 in salary deferrals; $15,500 if age 50 or older

Admin Responsibilities

  • No employer tax filings; certain annual employee notifications must generally be made by November 1st

Access to Assets

  • Withdraw at any time, but a 10% penalty may apply if under the age of 59.5 years. If the withdrawal is taken within first two years of participation in the plan, that penalty increases to 25%

Plan Set up Deadlines

  • Establish by October 1