Simple IRA

Allows employees to defer a portion of their salary into the plan each pay period, while employers commit to a small contribution each year. This simple plan for small business retirement offers tax advantages, lower contribution limits, and similar investment options to other types of retirement accounts.

Learn more about low-cost retirement savings options for small businesses with Mainstar Trust’s advisory services. Our staff of experts can explain investment options and ensure you’re making the most of tax advantages with your deductible contributions. Contact us today!

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Simple IRA FAQs

Are there employees I can exclude from my SIMPLE IRA plan?

You can exclude employees who are covered by a collective bargaining unit OR who are nonresident aliens with no U.S. source of income. Also excluding employees who haven’t met the eligibility requirements for enrollment.

Can any employer establish a SIMPLE IRA plan?

Any type of employer, including a self-employed individual, can establish a SIMPLE IRA plan, but the employer must have 100 or less employees. When considering the 100-employee limit, employers must count individuals employed by the business during the previous calendar year who earned $5,000 or more (an annual compensation requirement). Also, employers using a SIMPLE IRA plan are restricted from having any other type of employer-sponsored retirement plan.

Can I require all employees to open a SIMPLE IRA with the same IRA custodian or trustee?

Establishing the SIMPLE IRA plan with a document that names a designated financial institution (DFI), all contributions will be made to employee’s SIMPLE IRA held at that specific institution. If the document does not specify a DFI, employees can establish their SIMPLE IRAs at any financial institution they choose.

Does the SIMPLE IRA plan limit the amount I can contribute to my IRA?

A SIMPLE IRA plan doesn't affect your ability to make annual contributions to a traditional or Roth IRA that may have higher contribution limits.

Additionally to your SIMPLE IRA contributions, you can make traditional or Roth IRA contributions of up to $7,000, plus a $1,000 catch-up contribution if you are 50 years or older. Participating in a SIMPLE IRA plan may affect your capability to take a tax deduction for a traditional IRA contribution (depending on your income.)

How do I establish a SIMPLE IRA plan?

Establishing a SIMPLE IRA plan requires three steps:

1. The employer must sign a written SIMPLE IRA plan document. The IRS offers these free to use to adopt the plan. Custodians and IRA trustees also provide SIMPLE IRA plan documents.

2. The employer is obligated to notify each eligible employee that the SIMPLE IRA plan has been set in place and also provide them with information about the plan.

3. Each eligible employee must set up a SIMPLE IRA that will receive their employee contributions.

How much can be contributed to a SIMPLE IRA plan?

Each year, employees can defer up to $16,000, plus an additional $3,500 catch-up contribution if they are 50 years of age or older.

An employer is required to make either a matching contribution (dollar-for-dollar up to 3% of salary), or a nonelective contribution (2% contribution for all eligible employees). The 3% matching contribution can be reduced to as low as 1% for 2 out of every 5 years. On your business tax return, employer matching or nonelective contributions are deductible.

What are the benefits of a SIMPLE IRA plan?

A SIMPLE IRA plan is easy to set up, simple to oversee, and reasonably priced compared to other types of retirement plans. There are also no compliance tests and employers are not required to file annual reports with the IRS. For this type of plan, employees share the responsibility of funding the plan with their employers. (Unlike a SEP IRA plan which allows only employers to contribute to the plan, and employees are not allowed to add money.)

What is a SIMPLE IRA plan?

A SIMPLE IRA plan stands for Savings Incentive Match Plan for Employees. It is a retirement savings plan adopted by a business that allows both employers and employees to make retirement savings contributions. Each eligible employee sets up a SIMPLE IRA to receive the plan contributions.

What is the deadline to establish a SIMPLE IRA plan?

You can set up a SIMPLE IRA plan any time between January 1 and October 1 in the year you first adopt the plan. For example, an employer that wants to make a SIMPLE IRA plan contribution for 2018 would generally have until October 1, 2018, to set up the SIMPLE IRA plan.

When can I take money out of my SIMPLE IRA? Are there required minimum distributions?

For a SIMPLE IRA, you can take distributions including employer matching or nonelective contributions, at any time. Typically, the distribution will be included in the taxable income in the year of the distribution but may be subject to a 10% early withdrawal penalty – if you are not yet age 59½.

Which employees do I need to cover?

Your SIMPLE IRA plan eligibility is based on an employee’s compensation: an employer must cover anyone who earned an employee salary of $5,000 or more in compensation in any 2 preceding calendar years and are reasonably expected to earn that much in the current year. Employers and owners can choose to apply less restrictive eligibility requirements for employer contributions and vesting if they choose.