According to the IRS, the IRA simple or SIMPLE IRA plan is designed for the small business, specifically those with less than 100 employees. However, there are some exceptions to that rule of which we will discuss among other items below in this informative article. Namely, we will discuss what the IRA SIMPLE can provide in the form of retirement plans for your small business and employees, and how you can go about setting one up for your company. It truly makes sense to provide these benefits to help attract and retain employees to your business.
The exception to the 100 employee limit is the 2 year grace period allotted by the IRS for those businesses that may have gone over the limit. A couple of quick benefits to be noted with this particular plan is that employees are allowed to defer compensation through their simple ira, as well as employees are immediately 100% fully vested in the plan with regards to their contributions.
As an employer you can choose to either match your employees’ contributions up to 3% of pay or a 2% nonelective contribution can be made for each eligible employee. Bottom line, if the employee does not contribute, the employer still must make a contribution to their plan of at least 2% of their employees’ pay. A caveats to keep in mind before selecting this type of plan for your employees would include the fact that they are not allowed to particpate in any other retirement savings plan. The upside is that simplicity in getting started, which only should take a few minutes as there are only a couple of forms to fill out and get going. Moreover, it’s truly simple and inexpensive to setup and maintain. Not to mention, you begin to enable your employees to start taking control of their own financial future, do help them slowly lose the thought that somehow social security will be there when they retire – which for many in the younger generations – simply won’t likely be there. Not to mention, there is no discrimination testing required. On the flip side, there are inflexible contributions, and somewhat lower contribution limits than other self directed IRAs. That shouldn’t be an issue though – considering they are getting “free money” from their employer, which they wouldn’t get doing this on their own. No matter what, they can choose to participate or not, at least you’re offering it.
With automatic enrollment, the process can be simplified by deducting a fixed amount or percentage from the employees’ paycheck. Check out Notice 2009-66 / 2009-67 to get more information on automatic enrollment.
Employee – $10,500 in 2008 and $11,500 in 2009. If the employee is age 50 or over, a “catch-up” contribution is also allowed. This additional catch-up contribution amount is: 2008 and 2009 – $2,500.
Participant Loans: Not permitted.
In-Service Withdrawals: Permitted, but withdrawals are included in income and are subject to a 10% additional tax if the participant is under age 59-1/2. Also, if withdrawals are made within the first two years of participation, the 10% additional tax is increased to 25%.