The Small Business Guide to SIMPLE IRAs

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SIMPLE IRAs are employee retirement accounts especially useful for small businesses new to offering retirement benefits.
In September 2020, a survey found that approximately 1 in every 3 employees wanted their employer to offer retirement benefits. If this fact compels you to offer retirement plans for your employees, then a SIMPLE (Savings Incentive Match PLan for Employees) individual retirement account (IRA) is a great place to start. Below, learn how SIMPLE IRAs work and why they're especially useful for small businesses new to offering retirement benefits.

 

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What is a SIMPLE IRA?
A SIMPLE IRA is a retirement plan through which employees and employers can contribute to employees' retirement accounts. You might benefit from a SIMPLE IRA if your small business isn't currently sponsoring employee retirement plans but you're eager to do so. That's because SIMPLE IRAs are easy to start and nearly as comprehensive as more complex types of retirement accounts.

How does a SIMPLE IRA work?
You should keep these rules and considerations in mind when starting and administering a SIMPLE IRA for your business.

Business size
Any business with 100 employees at most can establish a SIMPLE IRA. However, for especially small businesses – those with just a few employees – a SEP IRA may be easier to start and perhaps more beneficial for tax purposes. SEP IRAs also work far better as self-employed retirement plans than do SIMPLE IRAs.

Sole plan
Another key difference between SIMPLE and SEP IRAs is that only the latter can be combined with other IRAs. If you start a SIMPLE IRA for your business, then it must be your only retirement plan.

Forms
Although your SIMPLE IRA provider may ask you to complete certain IRS forms, you'll never have to file any paperwork to set up or administer your plan. Your plan provider will take care of all paperwork for you.

Qualification
Any employee whom you paid at least $5,000 in any two previous years or whom you'll pay at least $5,000 during the current year qualifies for inclusion in your SIMPLE IRA. You can modify these requirements to make them less restrictive – i.e., to include all your employees regardless of their income or how long they've worked for your company. However, you cannot make your requirements more restrictive than the IRS' base-level criteria.