Simple IRA Plan

A SIMPLE IRA plan (Savings Incentive Match Plan for Employees) allows employees and employers to contribute to traditional IRAs set up for employees. It is ideally suited as a start-up retirement savings plan for small employers not currently sponsoring a retirement plan.

Overview

  • Available to any small business — generally with 100 or fewer employees
  • Easily established by adopting Form 5304-SIMPLE, 5305-SIMPLE, a SIMPLE IRA prototype or an individually designed plan document
  • Employer cannot have any other retirement plan
  • No filing requirement for the employer
  • Contributions – Call to discuss details
How does a SIMPLE IRA plan work?Example: Elizabeth works for the Rockland Quarry Company, a small business with 50 employees. Rockland has decided to establish a SIMPLE IRA plan for its employees and will match its employees’ contributions dollar-for-dollar up to 3% of each employee’s compensation. Under this option, if a Rockland employee does not contribute to his or her SIMPLE IRA, then that employee does not receive any matching employer contribution.

Elizabeth has a yearly compensation of $50,000 and contributes 5% of her compensation ($2,500) to her SIMPLE IRA. The Rockland matching contribution is $1,500 (3% of $50,000). Therefore, the total contribution to Elizabeth’s SIMPLE IRA that year is $4,000 (her $2,500 contribution plus Rockland’s $1,500 contribution). The financial institution holding Elizabeth’s SIMPLE IRA has several investment choices and she is free to choose which ones suit her best.

Pros and Cons

  • Easy and inexpensive to set up and operate
  • Employees share responsibility for their retirement
  • No discrimination testing required
  • Inflexible contributions
  • Lower contribution limits than some other retirement plans

Please check with St. Ansgar State Bank if interested.