+ Who can establish a SIMPLE IRA Plan?
Any employer (including self-employed individuals, tax-exempt organizations and governmental entities) that had no more than 100 employees with $5,000 or more in compensation during the preceding calendar year (the "100-employee limitation") can establish a SIMPLE IRA Plan.
+ What is the deadline for establishing a SIMPLE IRA Plan?
Generally, you may adopt a SIMPLE IRA Plan on any date between January 1 and October 1 for the current year. New businesses established after October 1 may adopt a SIMPLE IRA Plan as soon as administratively feasible after the business is established. If you (or a predecessor employer) previously maintained a SIMPLE IRA Plan, any subsequent SIMPLE IRA Plan you establish must be effective on January 1 of the applicable year.
+ Can I establish a SIMPLE IRA Plan for my self-employment income if I participate in my employer's retirement plan?
You may establish a SIMPLE IRA Plan for your self-employment business income even if you also participate in a retirement plan that is sponsored by a different employer. However, the total salary deferral contributions you make under your SIMPLE IRA Plan and under your employer’s retirement plan (if any) are subject to an aggregate annual limit of $22,500 ($30,000 for participants age 50 or older) for 2023 and $23,000 ($30,500 for those age 50 or older) for 2024.
+ Which employees are eligible to participate in my company’s SIMPLE IRA Plan?
All employees who received at least $5,000 in compensation from the business during any two preceding calendar years (whether or not consecutive), and who are reasonably expected to receive at least $5,000 in compensation during the current calendar year, are eligible to participate in the SIMPLE IRA Plan for the current year. You may adopt less restrictive eligibility criteria by eliminating or reducing the prior-year compensation requirement, the current-year compensation requirement, or both.In addition, union employees and nonresident alien employees may—under specific circumstances—be excluded from participation in a SIMPLE IRA Plan.
+ Are employer contributions required under a SIMPLE IRA Plan?
Each year, employers who maintain a SIMPLE IRA Plan are required to make either a
When using the matching contribution option, employers must match each employee's salary deferral contribution on a dollar-for-dollar basis up to 3%* of the employee's compensation. When using the nonelective contribution option, employers must make contributions equal to 2% of each eligible employee’s compensation (regardless of whether he or she has made salary deferral contributions).
*Employers may elect to provide a reduced matching contribution (as low as 1% of compensation), but such option may only be used for two years out of any five-year period.
+ Are employee contributions required under a SIMPLE IRA Plan?
Eligible employees are not required to make salary deferral contributions.
+ What is the deadline for making employer contributions under a SIMPLE IRA Plan?
Employer SIMPLE IRA contributions must be made by the due date of the business tax return (including extensions) of the year for which the contributions are being made.
+ What information concerning a SIMPLE IRA Plan must be provided to employees?
Before the employees' 60-day election period (which generally begins on November 2nd before each calendar year), an employer must provide each eligible employee with
+ Can I choose to include a vesting schedule in my company’s SIMPLE IRA Plan?
No. Vesting schedules are not permitted with SIMPLE IRA Plans.
+ Are there restrictions governing when employees may take distributions from their SIMPLE IRAs?
There are no restrictions on when an employee may take distributions from their SIMPLE IRAs. Distributions from SIMPLE IRAs are generally included in the employee’s income for the year the distribution is received. In addition, unless the employee qualifies for an exception, there will also be an early distribution penalty for amounts withdrawn before age 59½. The early distribution penalty is increased to 25% for amounts withdrawn by the employee within two years from when he or she first participated in the SIMPLE IRA Plan. Thereafter, the early distribution penalty is 10%.
+ Are loans permitted from SIMPLE IRAs?
No. A loan feature is not an option with a SIMPLE IRA Plan.
+ Is there a Roth feature to a SIMPLE IRA Plan?
Under the SECURE 2.0 Act, Roth contributions are allowed to be made through a SIMPLE IRA plan. But until we receive practical IRS guidance on how to implement such an option, it is unavailable. However, after the expiration of a two-year period that began on the date on which the employee first participated in the SIMPLE IRA Plan, SIMPLE IRAs are eligible to be converted to a Roth IRA.
+ Is there any government reporting that is required by an employer sponsoring a SIMPLE IRA Plan (e.g., IRS Form 5500)?
No, there is no special plan-level government reporting for SIMPLE IRA Plans.
+ How is a SIMPLE IRA Plan different from a SEP Plan?
Both SIMPLE IRA and SEP Plans are attractive for businesses looking for low cost and easy administration. The contributions under each plan are made to employees’ individual retirement arrangements (IRAs). While a SIMPLE IRA Plan typically requires a modest employer contribution, it is primarily funded through the individual salary deferral contributions of employees and owner-employees. The maximum salary deferral is $15,500 ($19,000 for participants age 50 and older) for 2023 and $16,000 ($19,500 for those age 50 and older) for 2024. Both employer contributions and employee payroll deferral contributions are made to the SIMPLE IRAs of each eligible plan participant.
In contrast, SEP Plans are funded exclusively through employer contributions that are made to the Traditional IRAs (often referred to as “SEP IRAs") of each eligible plan participant. As the plan sponsor of a SEP Plan, you decide the plan funding level from year to year—anywhere from as low as 0% to as high as 25% of each eligible plan participant’s compensation (including yourself, if applicable). The maximum amount that may be allocated to any one plan participant’s account is $66,000 for 2023 and $69,000 for 2024.
+ How is a SIMPLE IRA Plan different from a 401(k) Plan?
A SIMPLE IRA Plan is a simplified, cost-effective type of plan that is funded primarily through salary deferral contributions, but also requires a modest employer contribution. SIMPLE IRA contributions are made to the SIMPLE IRAs of each eligible participant. Once funds are contributed to each eligible participant’s SIMPLE IRA, the funds are controlled by the plan participant. So employers who sponsor a SIMPLE IRA Plan do not bear the ongoing responsibility of overseeing the administration of a group trust account. This provides each plan participant with maximum control over his or her own retirement funds while simultaneously relieving you—as the plan sponsor—from the additional burdens and responsibility of ongoing plan administration of a 401(k) Plan. While SIMPLE IRA Plans are typically less costly and administratively burdensome than 401(k) Plans, the maximum contributions under a SIMPLE IRA Plan are lower than the maximum contributions under a 401(k) Plan.
When considering plan features, a 401(k) Plan typically has more flexibility (e.g., distribution restrictions, vesting schedules, and plan loans,) than a SIMPLE IRA Plan. 401(k) Plans are funded through employee payroll deferral contributions and may also be funded with employer contributions (e.g., profit-sharing and matching contributions). While 401(k) Plans often include an employer funding component, not all types of 401(k) arrangements require employer funding.
Under a 401(k) Plan, contributions are generally held in a group trust account that is administered by the plan sponsor or by a third-party administrator hired by the plan sponsor. With required government reporting, discrimination testing, and recordkeeping, the 401(k) Plan will typically be more costly and more time consuming to administer than a SIMPLE IRA Plan.
+ How is a SIMPLE IRA Plan different from a Profit-Sharing Plan?
A SIMPLE IRA Plan is a simplified, cost-effective type of plan that requires a modest employer contribution but is funded primarily through salary deferral contributions. SIMPLE IRA contributions are made to the SIMPLE IRAs of each eligible participant. Once funds are contributed to each eligible participant’s SIMPLE IRA, the funds are controlled by the plan participant, meaning the plan sponsor does not bear the ongoing responsibility of overseeing the administration of a group trust account. This provides each plan participant with maximum control over his or her own retirement funds while simultaneously relieving the plan sponsor from the additional burdens and responsibility of ongoing plan administration.
Profit-Sharing Plans, on the other hand, are funded exclusively through employer contributions. With a Profit-Sharing Plan, the plan sponsor determines the applicable funding each year , with contribution levels ranging from 0% to 25% of compensation. Contributions under a Profit-Sharing Plan are made to an employer-administered group trust that is administered by the plan sponsor or by a third-party administrator hired by the plan sponsor. Profit-Sharing Plans typically offer additional plan features such as plan loans, vesting schedules, and withdrawal restrictions.