In order to have a SIMPLE-IRA plan you must be a small business â€“ that is, you must have 100 or fewer employees. However, there is a two-year grace period for growing employers to still be considered as a small business, even if they go over the 100-employee limit. If you do opt for a SIMPLE-IRA plan, your employees can elect to defer part of their salary. Each employee is always 100% vested in all contributions to their SIMPLE.
With a SIMPLE-IRA, you:
Pros and Cons:
Who Contributes: Employee and Employer contributions.
Employee â€“ $12,500 in 2015. If the employee is aged 50 and over, an additional â€œcatch-upâ€ contribution is allowed. The additional contribution amount is: $3,000.
Employer â€“ A dollar-for-dollar match up to 3% of pay or a 2% non-elective contribution for each eligible employee.
Filing Requirements: Establish the plan using Form 5304-SIMPLE (if employees are allowed to select the financial institution receiving their SIMPLE-IRA plan contributions), Form 5305-SIMPLE (if the employer requires that all contributions under the SIMPLE-IRA plan be initially deposited with a designated financial institution) or adopt a prototype. An employer has no filing requirements beyond that. The financial institution handles most of the other paperwork.
Participant Loans: Not permitted.
In-Service Withdrawals: Yes, but subject to income taxes and 10% penalty if under age 59-1/2. Also, if withdrawals are made within the first two years of participation, there is an additional 25% penalty if the employee is under age 59-1/2.
If you choose to establish a SIMPLE-IRA plan, the financial institution will probably have â€œpre-approvedâ€ SIMPLE-IRAs that you can choose. Once youâ€™ve settled on the SIMPLE-IRA that you think would work best for you and your business, you will need to fill out one of two forms, depending on which contribution formula that you choose:
For more information, please call us at 1.800.508.1144.