Has your small business procrastinated in setting up a
retirement plan? You might want to take a look at a SIMPLE IRA. SIMPLE stands
for “savings incentive match plan for employees.” If you decide you’re
interested in a SIMPLE IRA, you must establish it by no later than October 1 of
the year for which you want to make your initial deductible contribution. (If
you’re a new employer and come into existence after October 1, you can
establish the SIMPLE IRA as soon as administratively feasible.)
Pros and cons
Here are some of the basics of SIMPLEs:
- They’re available to businesses with 100 or fewer
employees.
- They offer greater income deferral opportunities than
individual retirement accounts (IRAs). However, other plans, such as SEPs
and 401(k)s, may permit larger annual deductible contributions.
- Participant loans aren’t allowed (unlike 401(k) and
other plans that can offer loans).
- As the name implies, it’s simple to set up and
administer these plans. You aren’t required to file annual financial
returns.
- If your business has other employees, you may have to
make SIMPLE IRA employer “matching” contributions.
Contribution amounts
Any employee who has compensation of at least $5,000 in any
prior two years, and is reasonably expected to earn $5,000 in the current year,
can elect to have a percentage of compensation put into a SIMPLE. An employee
may defer up to $12,500 in 2016. This amount is indexed for inflation each
year. Employees age 50 or older can make a catch-up contribution of up to
$3,000 in 2016.
If your business has other employees, you may have to make
SIMPLE IRA employer “matching” contributions.
Consider your choices
A SIMPLE IRA might be a good choice for your small business but
it isn’t the only choice. You might also be interested in setting up a
simplified employee pension plan, a 401(k) or other plan. Contact us to learn
more about a SIMPLE IRA or to hear about other retirement alternatives for your
business.
© 2016
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