Savings Incentive Match Plan for Employees (SIMPLE) IRA

A Savings Incentive Match Plan for Employees, commonly referred to as a SIMPLE IRA, is a type of employer-sponsored retirement savings plan. It is a great way to increase the amount that you and your employees are saving for retirement. The SIMPLE IRA is an alternative option for self-employed individuals or small business owners who have 100 employees or fewer.

The rules governing a SIMPLE IRA plan are not as complicated as a 401(k) plan. Contributions made to the plan have the potential to provide the employer with a tax-deduction equivalent to the amount of the contribution made into the account each year. This potential tax benefit is subject to government guidelines. Earnings within the account are tax-deferred until withdrawn, just like a 401(k) plan.

This means that the investment income in these accounts grows without having to be included in the account owner’s annual taxable income. Only when the funds are withdrawn from the account as a distribution will there be a potential tax liability.

Key Features

• Tax-Deferred Growth
  One of the most notable benefits of a SIMPLE IRA is that funds are tax-deferred while in the account. That means that any money in the account is also tax-deferred until withdrawn from the account. For clarification, tax-deferred means you do not have to pay taxes until the funds or assets are removed from the account. You can invest in almost anything except for the prohibited investments outlined by the Internal Revenue Code. A few examples of investments you can partake in are: private companies, third-party lending/promissory notes, or oil and gas ventures. However, it is important to be aware of any potentially prohibited transactions when selecting and making investments within the plan to ensure you do not invest in a prohibited investment.

• Tax Deductions
  Contributions to a SIMPLE IRA may be tax deductible by your business, provided you meet certain requirements.

• Employee Retention
  This plan assists in motivating employee retention by providing your team with additional benefits such as the ability to save more for retirement, by being employed with your company.

• 100% Vested
  Contributions made to a SIMPLE IRA are always 100% vested.

NOTE: Please visit www.irs.gov for a complete breakdown of the rules and regulations concerning SIMPLE plans. Certain restrictions apply regarding prohibited transactions.

Frequently Asked Questions

about SIMPLE IRAs