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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 Earnings within the account are tax-deferred until withdrawn, just like a 401(k) plan.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 Only when the funds are withdrawn from the account as a distribution will there be a potential tax liability.
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 That means that any money in the account is also tax-deferred until withdrawn from the account.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 IRAs. Certain restrictions apply regarding prohibited transactions.
| 2023 | 2022 | |
|---|---|---|
| For Tax Year 2020 | ||
| Employer Contribution Limits* | Up to 3% of Compensation ($15,500 Maximum)* |
Up to 3% of Compensation ($14,000 Maximum)* |
| Employee Contribution Limit | $15,500 | $14,000 |
| Employee Catch-Up Contribution (Age 50 or Older) |
$3,500 | $3,000 |
*Employers can choose from one of three contribution options:
- Match employee deferrals dollar-for-dollar, up to three percent of the employee’s compensation (compensation includes employee deferrals).
- Two percent nonelective contribution to all eligible employees (even to those employees who decided not to defer) .**
- Elect to match a lower percentage (but not lower than one percent). This option is allowed for only two years of any five-year period.***
**The two percent nonelective contribution is based on two percent of the eligible employee’s compensation, up to the compensation cap. For 2023, the compensation cap is $330,000, raised from the compensation cap of $305,000 in 2022.
***The five-year period includes the current year and the prior four years. If during the five-year period there are years where the SIMPLE IRA plan was not yet established or the employer made nonelective contributions to the plan, the employer is considered as having satisfied the three percent matching contribution requirement for those specific years.
This material is provided for general educational and informational purposes only and should not be considered to be legal, tax or investment advice. Provident Trust Group, LLC is a non-discretionary, passive, directed custodian that does not sell or solicit investments and does not provide investment advice or recommendations. Provident Trust Group, LLC is not obligated to review and does not endorse any investment or investment advisor, and individuals are responsible for the investments in their accounts. Consult with a tax and/or financial advisor to determine what may be best for your individual needs.
Frequently Asked Questions
Here are a few of the most frequently asked questions when opening a self-directed account.
How do your fees differ from other custodians who handle traditional & alternative assets?
Provident Trust Group offers a flat-rate annual fee. This differs from many other alternative asset custodians who may increase your annual fee based on an increase in the number of assets you select, value of your assets, or even the purchase of a different asset class.
Most custodians of traditional assets collect fees and/or commissions based off of the amount of trades or recommendations of investment choices. For our full fee schedule, click here.
Can Provident Trust Group provide tax or legal advice regarding your investment?
No. If you should need tax or legal advice regarding your investment, you may engage a specialized tax law firm to provide the needed advice.
What types of investments are prohibited with retirement accounts?
The IRS does not state which investments are permissible in a qualified account or retirement plan, but they do state specific asset classes that are prohibited. The IRS currently prohibits IRAs from investing in Life Insurance, Collectibles and S-Corps. Some examples of collectibles, include:
- Artwork,
- Rugs,
- Antiques,
- Metals – with exceptions for certain kinds of bullion,
- Gems,
- Stamps,
- Coins – (but there are exceptions for certain coins),
- Alcoholic beverages, and
- Certain other tangible personal property.
For more information, click here for the IRS Website.
Can my account invest with other partners, including myself?
Yes, your IRA can invest with other partners and yourself individually. However, it is important to consult legal counsel in these situations to observe formalities and rules that may be associated with that investment.
Not Sure What Plan Is Right For You?
Take a minute or two and compare similar plans that may be the right fit for your needs.
The Provident Advantage
Our approach focuses on delivering clear and concise information so you can make well-informed decisions regarding your investments. Our clients rely on our abilities to ensure every administrative and reporting detail is covered and completed on time.
IRS Required Reporting
Record Keeping
IRA & Qualified Plan Administration
Transfer Processing
Alternative Asset Custody
Rollover Assistance
Self-Directed Education
Contribution Processing
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Our 100% web-based process provides easier form completion and clearer view of holdings and transactions that will assist customers in opening new accounts securely and quickly without any physical paperwork. Customers can also complete fund transfers from other custodians, electronically initiate investments, as well as manage multiple accounts with a click of a button.
