The employer must follow the formula in the plan document. The employer made incorrect employer contributions for eligible employees. What are some common errors with see with SIMPLE IRA Plans? The employer must use the definition in the plan document. The employer used the wrong compensation definition to calculate deferrals and contributions for participants. The employer excluded an eligible employee from participating in the plan. The employer sponsors another qualified retirement plan. The employer had more than 100 employees who earned $5,000 or more in compensation for the prior year.
#FINDY SIMPLE IRA PLAN ACCOUNT INFORMATION UPDATE#
The employer didn’t update the SIMPLE IRA plan document for current law changes. What are some of the common errors found in SIMPLE IRA plans? This penalty increases to 25% if funds are withdrawn within 2 years after the employee first participates in the plan. The tax (or penalty) for withdrawing funds before an employee turns age 59 ½ is typically 10%. Withdrawals of SIMPLE funds are allowed from the plan at any time and are subject to income tax. What are the withdrawal options with a SIMPLE? Employees own their SIMPLE IRAs.Īs mentioned before, employees are always 100% vested in both employee and employer SIMPLE IRA contributions. However, you can make contributions through the due date of the tax return (including extensions).Īlso, no employer contributions are allowed besides the match or 2% non-elective contribution. You can’t reduce the match in the middle of the year. If you choose the match, you can reduce it to 1%, but you can only do this for 2 out of 5 years. You have two options for the required employer contribution: A 3% match on 100% of the employee deferrals, or a non-elective contribution of 2% of each employee’s compensation, regardless of profits. Unlike some of the other IRAs, the SIMPLE IRA does require certain employer contributions. Employees can defer up to $13,500 of their compensation for 20. How much can be contributed to a SIMPLE? Employers and employees can make contributions to a SIMPLE.īoth types of contributions are always 100% vested. Further, the employer can make the eligibility requirements less restrictive by requiring less compensation to be eligible, which would allow more employees to participate. What are the eligibility requirements for employees to participate in the plan?Īll Employees that made at least $5,000 in any two prior years and are expected to make at least $5,000 in the current year must be eligible to participate. What are the eligibility requirements to maintain a SIMPLE? Your business must have 100 or fewer employees to maintain this type of plan.Īlso, Simple Plans are subject to the exclusive plan rule - you can’t maintain any other retirement plans (a 401k or other IRA) Next, we'll talk about SIMPLE plan eligibility. Note that there is no requirement that the plan file Form 5500 with the IRS. You could also adopt a prototype document issued by a financial institution or an individually designed plan. To set up your SIMPLE IRA Plan, you must complete Form 5304-SIMPLE or Form 5305-SIMPLE. Now, let’s look at the requirements for maintaining a SIMPLE IRA to help you decide if this is the right plan for your small business. They allow contributions to be made by the employee and the employer.Īdditionally, employers can receive a tax credit of up to $5,000 for 3 years for start-up costs related to setting up a new SIMPLE Plan. What is a SIMPLE IRA plan? The SIMPLE acronym stands for: “Savings Incentive Match Plan for Employees.” These types of plans are easy to set up, easy to maintain, and don’t have any IRS filing requirements.
The information in this session isn’t official guidance. Thank you for attending this session on SIMPLE Plan Options for Small Businesses.
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