October 26, 2018
For certain employers, particularly small businesses, introducing a retirement plan for employees may seem like a daunting task. The company owner may feel that providing a full-blown 401(k) plan is his or her only choice, but that’s far from true.
There are other options to consider that are relatively easier to administer and usually less costly to set up and maintain. One such plan is a SIMPLE IRA.
The acronym SIMPLE stands for “Savings Incentive Match Plan for Employees.” (And, of course, IRA stands for “individual retirement account.”) The concept behind these plans is to allow employers with 100 or fewer employees to provide a retirement plan without running into the often-confusing complexities of 401(k) plans. A SIMPLE IRA may even be a viable option for self-employed individuals.
Naturally, these plans still have some requirements and restrictions. Although eligible employees may contribute to their accounts themselves — which isn’t the case for pensions, for example — those annual contributions are less than those allowed for 401(k)s. In 2018, an employee can contribute up to $12,500, or up to $15,500 if the employee is 50 or older. (As of this writing, these amounts for 2019 had not yet been announced.)
There’s also a required match from the employer. Generally, you must choose between:
An employer’s contributions are tax-deductible and employee contributions are made on a pretax basis. Thus, the payment of taxes is deferred until distributions begin.
Please note that the deadline for setting up a SIMPLE IRA for 2018 has already passed. But you could begin exploring the idea now with an eye toward establishing this or another retirement plan for your employees for next year. To discuss further, please contact us.
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