A SIMPLE IRA — Savings Incentive Match Plan for Employees — is a salary-reduction retirement plan for small businesses. Funding for the plan comes from contributions from you, as the employer, and your employees. All contributions are deducted regularly from salaries before tax.
Farm Bureau can help you set up SIMPLE IRAs for yourself and your employees. Because they are simplified, SIMPLE IRAs are easier to establish and administrative costs can be lower than other retirement plans. Other advantages of SIMPLE IRAs include:
You and your eligible employees may participate
Employee deferrals and your matching contributions are tax-deductible
Earnings grow tax-deferred
Valuable employee benefit to help you recruit and retain quality employees
Choice of contribution options ― a Farm Bureau agent can help you choose
No complicated retirement plan compliance tests
There’s no waiting ― or vesting ― period on contributions; they belong 100 percent to the participant immediately and can be moved if an employee leaves
SIMPLE IRA Eligibility
You may establish a SIMPLE IRA if you have fewer than 100 employees who have received at least $5,000 in compensation from your company in the preceding year, and you don’t have another employer-sponsored retirement plan in place. Contributions must be made by your tax return due date, including extensions. The money withheld from paychecks must be contributed within 30 days of the end of the month during which the money is withheld. There are two ways an employer can contribute to a SIMPLE IRA:
Dollar-for-dollar match of a participant’s contributions up to 3 percent of his or her annual compensation, subject to a cap (indexed annually).1
Contribute 2 percent of each eligible employee’s compensation each year, whether or not the employee contributes.
Eligible employees must have earned at least $5,000 in compensation from your company in any prior two years and are expected to do so in the current year.2
SIMPLE IRA Guidelines
Each participant can exclude income from his or her paycheck up to a cap (indexed annually). Participants who are 50 by the end of 2008 or older may be allowed a $2,500 catch-up contribution. Participants may withdraw their money whenever they wish; however, early withdrawal penalties may apply.3
Participants may take distributions without IRS penalty after age 59½ and in the case of disability, death or other allowable exception. Generally, distributions from a SIMPLE IRA are considered ordinary income and are taxed as withdrawn. If participants withdraw funds prior to age 59½, they are subject to IRS penalties of up to 25 percent, plus federal and state income tax. Minimum benefit payments must begin by April 1 of the year following the year in which a participant reaches age 70½, even if he or she is not retired. Funds of employees who leave the company can be rolled over or transferred to a Traditional IRA tax-free beginning two years after the employee becomes a plan participant with the new employer. Rollovers into another SIMPLE IRA are not subject to the two-year restriction.
To find out if a SIMPLE IRA is right for your business, find a local Farm Bureau agent today.
1Generally you can reduce your match to 1 percent of a participant’s compensation for any two years within a 5-year period.
2Plan requirements may vary.
3Your policy and/or current prospectus will provide information on any additional charges or expenses. Consult your agent and attorney or tax advisor before making an early withdrawal.