SIMPLEIRA, or Savings Incentive Match Plan, is available to a variety of business structures with 1 to 100 employees. It can be an ideal option for employers who would like their employees to share responsibility for their own retirement savings without the complexity, cost and administration of a 401(k).
SIMPLE IRAs allow for both employee and employer contributions. Eligible employees must have completed two years of service during which they’ve earned at least $5,000 per year and expect to earn at least $5,000 during the current year. Employees can contribute up to $12,500 in 2016, and participants age 50 and over can make additional catch-up contributions of up to $3,000.
Employer contributions are mandatory, but there are two funding options: Dollar-for-dollar match of participant’s contributions, up to 3% of compensation, which can be reduced to a minimum of 1% in any two years out of a five-year period; or a non-elective 2% of compensation contribution for each eligible employee, regardless of whether the employee participates in the plan. Due to the mandatory funding requirements employers can maximize their own salary deferrals regardless of the amounts deferred by other employees.
SIMPLE IRAs feature several potential benefits for employers, including low plan administration costs, no annual filing or testing requirements and limited fiduciary responsibility. The plan also offers tax advantages to both the employer and employee. Some considerations include an annual 60-day notice requirement to eligible participants and new plans must be established by October 1 of the plan year.
Call your financial advisor today to explore if a profit-sharing plan is right for you. To learn more access Retirement Plans for Small Businesses Employer Guide.