SIMPLE IRA: A retirement option for your employees

Recruiting and retaining quality employees in today’s marketplace requires attracting them with benefits packages that incentivize them. For smaller-sized businesses, a SIMPLE IRA is a twice-as-nice benefit offering because of its low cost to employers and the tax advantages it offers to employees. Let’s dive into the details of SIMPLE IRA plans, Q&A-style, so you can decide whether this is a benefit offering you’d like to explore for your employees.

What kinds of businesses can participate?

The IRS has specific guidelines for which small businesses and self-employed individuals can participate in a SIMPLE IRA plan. Your organization qualifies if it meets the following criteria:

• Must have 100 or fewer employees
• No other employer-sponsored retirement plan offered
• Participating employees must have earned at least $5,000 in pay from your business in any two preceding years and be expected to earn at least $5,000 in the current year
• An employer can choose less restrictive participation requirements. For example, an employer can expand the group of eligible employees by reducing or eliminating the minimum compensation requirement.

Who contributes funds?

Employees can elect to have pre-tax salary deferrals directed to the account, giving them tax advantages in saving for retirement. Employees of all ages may defer up to $16,000 per year in 2024 ($19,500 if 50 years of age or older). Contribution limit increases are voted on by Congress and announced in the fourth quarter of each calendar year.

Employer contributions are also made to SIMPLE IRAs. As the employer, you’ll choose between a mandatory dollar-for-dollar matching contribution of up to 3% of compensation or a non-elective contribution of 2% of compensation for all eligible employees.

What are the tax benefits?

Employers can deduct contributions from federal taxable income, and employees can make pre-tax contributions. A key benefit of pre-tax retirement savings accounts is the potential for participants to reduce their income tax burden now and defer those taxes until they withdraw their money.

There is a 25% penalty if funds are withdrawn before two years from the first deposit into a participant’s account. After that, a 10% penalty applies to any withdrawals that occur before the participant reaches the age of 59½ with some exceptions.

What investment options are available?

Employees can select their investments from a menu of low-cost mutual funds. Investment transfers and investment allocation changes are allowed at any time.

We’re here to help

With a SIMPLE IRA plan from UBT, you never have to stress about the fine details. Our people are here to guide you every step of the way as you establish a SIMPLE IRA plan. Our entire IRA team is well-versed in all the regulatory requirements of maintaining a successful SIMPLE IRA, so you can be sure you and your employees are getting all the tax advantages available while remaining compliant. To discuss SIMPLE IRAs as a retirement plan option, don’t hesitate to reach out.