A business retirement plan is a great employee benefit program that can help attract and retain quality employees. As an added bonus, it can be an effective way to reduce current taxes while saving for retirement. Have you thought about offering a retirement plan at your business but felt that your company is too small or that maintaining a retirement plan will be too costly or complicated?
A special retirement plan designed for small businesses can combine the power of payroll contributions with the simplicity of IRAs. One such plan is called a SIMPLE (Savings Incentive Match Plan) IRA, which allows employees to make salary reduction contributions to the plan and allows the employer to make matching contributions to the employee’s account. Employee contributions are made on a pre-tax basis and the investments grow tax-deferred until withdrawn.
You may want to consider a SIMPLE IRA plan for payroll contributions and a match if:
- Your business employs multiple individuals (other than you or your spouse). A SIMPLE IRA plan allows each participant to save up to $12,500 per year from their paycheck, with an additional $3,000 catch-up allowance for those over age 50. The employer is required to provide a match to the participant in the form of either a dollar-for-dollar match up to the first 3% of pay or a non-elective match of 2% for all employees.
- You would like your employees to take primary responsibility for their IRA plan retirement savings. As an employer, you have discretion over the mix between current compensation retirement benefits for your employees. By adopting a SIMPLE IRA plan, you will empower your employees so that they can personally decide the best compensation and retirement savings for themselves.
- You would like to give your employees the ability to make contributions each and every year. Eligible employees are able to make payroll contributions under a SIMPLE IRA plan each year. Employer contributions are mandatory and must be made each year in the form of a match or a non-elective contribution.
As the name suggests, the plan is simple to set up and administer. Generally speaking, all employees that are expected to earn at least $5,000 in the year will be eligible to participate in the plan. There is no fiduciary responsibility for the investment choices or plan options on the part of the employer as each account is an IRA and it is the responsibility of each employee to manage their own account. Unlike 401k plans or other retirement plans, there are no F5500 reporting or testing (ADP/ACP) requirements.
A SIMPLE IRA is a great way to help the business owner and employees save for their retirement while allowing the business to easily administer a retirement plan and avoid the added burdens and expenses of some of the more complicated plans available. A SIMPLE IRA can be a great option for any business that has 2 employees or 50 employees. Contact us today to learn more and see how this plan can help benefit your business.