A SIMPLE IRA is an excellent choice for small-business owners because it is easier to establish and maintain than other qualified retirement plans. Through a SIMPLE IRA, employers make tax-deductible contributions, and employees may make pre-tax salary reduction contributions.
You are eligible to establish a SIMPLE IRA for your business if you:
- Have 100 or fewer employees who each received $5,000 or more in compensation in the past calendar year, and
- Did not maintain another employer-sponsored retirement plan during the calendar year.
Establishment and administration of a SIMPLE IRA is as easy as the name suggests. Employers are not required to file reports with the IRS or the Department of Labor, and plan maintenance is significantly less involved than that found in many qualified retirement plans.
There is no required level of plan participation from the employees or top-heavy testing for the plan. This means that plan participation is voluntary and does not impact what an employer or other employees may contribute to the plan.
No annual fees
Modern Woodmen does not charge an annual fee for SIMPLE IRA administration.
Eligible employees are allowed to make pre-tax contributions by deferring part of their compensation. Employees can contribute up to $12,000* if they are under age 50 and up to $14,500* if they will turn age 50 or older during the calendar year.
Annual employer contributions are mandatory, but an employer may choose to make either:
- A dollar-for-dollar matching contribution equal to the employee’s contribution (limited to 3 percent of the employee’s gross compensation for the calendar year) or
- A non-elective contribution that equals 2 percent of an eligible employee’s compensation, whether or not the employee makes his or her own contribution.
In a SIMPLE IRA, pre-tax salary deduction contributions from employees and tax-deductible contributions from employers accumulate and grow tax-deferred, allowing your retirement savings to accumulate more rapidly than they would in a fully taxable account.
In a SIMPLE IRA, specific guidelines determine which employees must be eligible to participate and which may be excluded from the plan.
At a minimum, employees must be included in the plan if:
- They received at least $5,000 in compensation during any two preceding years and
- They are reasonably expected to receive at least $5,000 in compensation during the current year.
More liberal participation requirements are available and are up to the discretion of the employer.
Employees who are nonresident aliens and employees who are covered under a collective bargaining agreement may be excluded. Withdrawals
All withdrawals are subject to ordinary income taxes. A 10 percent premature withdrawal penalty from the IRS may apply if a withdrawal is taken before an employee reaches the age of 59½. The 10 percent penalty for early withdrawal may be increased to 25 percent if the withdrawal occurs before an employee reaches the age of 59½ and within the first two years of plan participation in the SIMPLE IRA. Transfer existing SIMPLE IRAs to Modern Woodmen
If you have an existing SIMPLE IRA that you’d like to move to Modern Woodmen, avoid income taxes by completing a SIMPLE IRA to SIMPLE IRA transfer. If you have an existing SIMPLE IRA that is at least 2 years old, you can transfer that SIMPLE IRA to either a SIMPLE IRA if you are an active participant in a Simple IRA or to a Traditional IRA at Modern Woodmen.