The Benefits of a Simple IRA for You and Your Business

Although most employers allow their employees to save for retirement using robust retirement plans such as 457, 401(k), and 403(b), these plans have strict rules that can be cumbersome for both the employer and the employee. This is why most small businesses choose the SIMPLE IRA, which have fewer procedures and are easier to administrate.

With so many business retirement plans, it is hard to choose the right plan for your business. This is why it is crucial to familiarize yourself with what each scheme offers. A simple IRA is an ideal retirement plant for a small business. In case you are wondering what the SIMPLE IRA is, it can be defined as an easy to manage savings plan that lets your employees set aside tax-deferred money for their retirement. The cash in this account is invested, just like the traditional IRAs.

What is a simple IRA?

To understand and enjoy the benefits of a SIMPLE IRA, you must first understand what it is. A SIMPLE (Savings Incentive Match for Employees of Small Employers) IRA is an employer-sponsored savings incentive plan for employees’ Individual Retirement Accounts. This means that it is offered to the employees through the business. These plans are made for small companies with a maximum of 100 employees. 

Simple IRAs require the employer to match the employees’ salary contributions on a dollar-for-dollar basis. The maximum subscription is 3% of the employee’s compensation. Instead of checking the limites contributions with the salary, the employer can choose to make a mandatory contribution of 2% of the employee’s salary. There are several IRA plans, and your employees have to meet specific requirements to qualify for each type. For the simple IRA, your employees qualify if they made more than $5000 during any two previous years, and they anticipate to make that much in the current and subsequent year. If employees are enrolled in a simple IRA, they cannot maintain or contribute to any other retirement plan that calendar year.

Benefits of IRA
1. Retirement Made Easy

Simple IRA plans have a lesser administrative burden on the business than other employer-sponsored retirement plans like a 401(k). Also, they are not subject to tests such as discrimination tests. You can quickly implement a retirement plan as a small business owner or an independent contractor without a lot of paperwork. Unlike other retirement plans for small businesses, a simple IRA does not require the annual filing of 5500. The simple IRA plan is set up using IRS forms 5305-SIMPLE or 5304-SIMPLE. 

Employers who take simple IRA plans are relieved of the massive bureaucracy with other retirement plans such as tax reporting and vesting schedules. This makes the program easy to set up and run. The employer will also not spend extra time and money, hiring a professional to handle the retirement plans.

2. Flexible

The contributions can come from the employer or the employee. Unlike other retirement plans that require the employer to match the employees’ contributions, a simple IRA does not mandate the employer to compare savings. 

3. Tax Break

Both the employer and the employee get tax credits with this retirement plan. A simple IRA plan gives the employer a tax break while providing the employees with a way to save for retirement. In early January 2020, the United States President signed the SECURE Act,, which provides tax incentives to small businesses with retirement plans for their employees or allowing their employees to join MEPs (Multiple Employee Plan). With an MEP, employers can collaborate with other companies to offer better requirement plans to their employees. The bill eliminates the maximum age limit for contributions towards traditional individual retirement plans.

The Benefits of a Simple IRA for You and Your Business


As with other retirement plans, this plan allows the employees to set aside part of their salaries into the saving plan. The savings grow tax-deferred until the contributions are withdrawn at retirement. This enables the contributions to compound more rapidly.

4. Instant Vesting

The employee contributions belong to them, and they can go with them when they leave regardless of the tenure or terms of leaving the organization. Employers match contributions for other retirement plans such as the 401(k) come with a graded vesting schedule or a cliff that requires all employees to stay with the firm for a specified amount of time before owning all matching contributions. 

5. Contribution Limits

Employees can save up to $13,500 of income with a simple IRA, while with other plans, they can defer up to $3,000 in matching contributions. Employees who are older than 50 years can make an extra contribution of $3,000, earning $16,500.

Simple IRAs provide a better retirement plant for small employers who want to avoid the fiduciary and bureaucratic complexities of qualified plans.

The post The Benefits of a Simple IRA for You and Your Business appeared first on Mike Gingerich.

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