Offering a retirement savings plan is a great perk to attract top-notch talent. But for many small business owners, the prospect of establishing a retirement plan may seem daunting. According to the Internal Revenue Service (IRS), the SIMPLE IRA (Savings Incentive Match PLan for Employees) is an ideal option for a start-up savings plan. Continue reading to learn more about the SIMPLE IRA to help determine if this is the right option for your company.
Establishing a SIMPLE IRA Plan
Employers with no more than 100 employees who earned $5,000 or more in the preceding calendar year qualify to establish a SIMPLE IRA plan. The IRS outlines a three-step process to set up a SIMPLE IRA plan:
- Execute a SIMPLE IRA written agreement to provide benefits to all eligible employees.
- Provide each eligible employee with details of the plan.
- Set up a SIMPLE IRA for each eligible employee.
In general, SIMPLE IRA plans are easier to set up and offer lower administrative fees compared to other retirement savings plans.
SIMPLE IRA Contributions
SIMPLE IRA plans work much like standard 401(k) plans. Employees have the option to make contributions to the plan through tax-deferred payroll deductions. Under a SIMPLE IRA plan, employers have the option to match employee contributions up to 3% of the employee’s compensation or to make nonelective contributions of 2% of each eligible employee’s compensation. Employer matching contributions must be on a dollar-for-dollar basis. If the employer offers nonelective contributions, then employer contribution matching is not required.
Employees participating in a SIMPLE IRA cannot contribute more than $13,000 in 2019. If an employee participates in other employer-sponsored retirement plans, the individual employee cannot contribute more than a total of $19,000 across all plans in 2019. Like 401(k) plans, participants aged 50 or older may qualify for additional catch-up contributions of $3,000.
Is a SIMPLE IRA Right for My Company?
Establishing a SIMPLE IRA is a great option for small business owners who have never managed a retirement savings plan before. The set-up process is relatively easy and the amount of hands-on administration required compared to other employer-sponsored options is generally much less. However, the contribution limits and guidelines make the SIMPLE IRA somewhat more limited than other options like the SEP IRA or a standard 401(k) plan. If you are looking for a starting point with a low level of difficulty, allowing you to learn and grow, the SIMPLE IRA is a good fit for you.
Our team at Wickham Financial & Insurance Services is experienced at advising business owners on choosing and establishing retirement savings plans for their employees. When working with clients, we always begin by building a strong relationship and getting to know each person on an individual basis. All of our recommendations are built on the philosophy that our clients’ goals are also our own. Contact us today to meet with one of our financial professionals, get to know us and how we work with clients, and let us help guide you through the process of establishing the best retirement savings plan for you and your employees.
Any information provided has been prepared from sources believed to be reliable but is not guaranteed, does not represent all available data necessary for making investment decisions and is for informational purposes only.