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A SIMPLE Retirement Plan, also known as Savings Incentive Math Plans for Employees, can be a way for small business employers to attract potential employees. SIMPLE plans come in the form of SIMPLE IRAs and SIMPLE 401(k)s. These plans are available only to small businesses that do not have any other kind of retirement plan and have under 100 employees -- businesses over that amount are not eligible. SIMPLE IRAs are preferred to the 401(k) plan. The costs are rather low and set up is not too difficult. As the employer, with a SIMPLE retirement plan, you can contribute 2% of the wages of your eligible employees on their behalf, or you can match the contributions of eligible employees who contribute 3% of their wages. Employees choose how their deferrals are invested, and are limited to having $11,500 of their portions withheld, annually. If you are interested in setting up a SIMPLE Retirement Plan for your business, read on. |
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Step 1 Make sure you are eligible. As stated above, to implement a SIMPLE IRA, it is required that your business have 100 employees or less, all of which earned at least $5,000 in the previous year. Employees who are not eligible for the SIMPLE IRA plan are also counted towards the 100 employee limit, as well as private contractors/self-employed individuals who received direct income from the business. Step 2 Choose a SIMPLE IRA plan. You can use a prototype that's been approved by the IRS, or you can use the IRA models established in the proper forms (Form 5305-SIMPLE and Form 5304-SIMPLE). This will need to be set up on the dates between January 1st and October 1st; however, if you or a previous employer have, in the past, implemented a SIMPLE IRA plan within your company, the plan will need to be set up on January 1st. Step 3 Determine which employees are eligible. A SIMPLE retirement plan is required to be established for each employee that is eligible. You will be required to provide them with information on the SIMPLE IRA plan, such as where their funds will be deposited. If your employee will not or cannot establish their own account, the employer will be required to do so on the employee's behalf. The employee, however, can opt not to have money taken out of their salary. Step 4 Set up the SIMPLE retirement plan for each eligible employee, using either a trust or custodial account. Banks, eligible financial institutions, insurance companies, etc, are all places where SIMPLE IRA plans can be set up for your employees. This will need to be done before the first day in which funds will be deposited to the employee's account. |
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