What is a SIMPLE IRA?
If you’re self-employed or a sole proprietor looking for higher contribution limits than a Traditional or Roth IRA, establishing a SIMPLE (Savings Incentive Match Plan for Employees) IRA might be a good option. In a SIMPLE IRA, both ‘Employer’ and ‘Employee’ contributions are tax deductible, and earnings within the account are tax free until withdrawal, just like a Traditional IRA, SEP IRA or 401(k). However, the ‘Employer Match’ is a requirement, not an option, which is where its name comes from.
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Advantages of a SIMPLE IRA
A SIMPLE is easy to establish and maintain and allows higher contributions that Traditional IRAs, while providing the same tax benefits. There are no annual 5500 filing requirements or discrimination testing like a 401(k) plan.
Employer and employee (which are the same individual for the self-employed) each make tax deductible contributions to the plan.
Disadvantages of a SIMPLE IRA
More Restrictions and Less Tax Advantage Than a SEP IRA
Maximum contribution limits are significantly less than those of a SEP IRA or Individual (k) retirement plan and the plan must be established before tax deferrals can be made, unlike the SEP which can be established and the tax deferral taken at the time of your tax filing. Early withdrawal penalties for a SIMPLE IRA are also more than double those related to a SEP.
100% Required Employer Match
As an employer, you are generally required to match each employee’s contributions to a SIMPLE IRA, on a dollar-for-dollar basis (100%), up to 3% of the employee’s compensation. This can be an issue for many business owners when the economy takes a downturn and finding the funds to match their own contributions (and those of their other employees) becomes a difficult requirement to fulfill.
Distribution Age Requirements and Penalties
The same age bracket for non-penalty distribution applies to SIMPLE plans as most other tax deferred retirement plans: After 59 ½ and before 70 ½. Distributions must begin by April 1st of the year following the year the individual reaches age 70 ½ and distributions requested before age 59 ½ would incur a stiff tax penalty.
“Provident Trust Group has grown to over 20,000 clients with over $3 billion in assets currently in custody. Both internationally and across the U.S., clients and their teams of financial advisors have placed their confidence in us. ”
Why Open a SIMPLE IRA with Provident?
Provident is owned and operated by a team of tax attorneys and highly qualified professionals. Personalized, timely service is something our clients have found they can rely on with Provident. We will happily help you sort through the advantages and disadvantages of the various types of IRA’s and other retirement investment options.
All it takes is a phone call, to begin your relationship with the professionals at Provident, though we’d be happy to meet you in person at our Las Vegas office as well.
Give us a call at 888-855-9856. We’d be happy to answer your questions related to retirement savings and investments through a Self-Directed SIMPLE IRA or any other retirement plan that you are considering.