Simple IRA Plans

The Savings Incentive Match Plan for employees (SIMPLE) IRA is a low-cost alternative for employers who view 401(k) administrative costs as limiting but still want to offer their employees a retirement savings plan.

Simple IRA Plan Eligibility

Business entities, including self-employed persons, partnerships and corporations, as well as certain tax-exempt organizations, can establish SIMPLE IRA plans.

An employer maintaining a SIMPLE IRA plan may not maintain any other qualified plan in which its employees currently receive benefits. An eligible employer is defined as having 100 or fewer employees. Employees must be eligible if they received at least $5,000 in compensation during any two preceding years and/or are expected to earn at least $5,000 in the current year. A less restrictive eligibility requirement may be used. There are no minimum participation requirements.

Simple IRA Plan Contributions

Employees may defer their contributions up to a limit (which changes annually) with no set maximum percentage of compensation.

The employer must make a mandatory contribution as either a matching dollar-for-dollar contribution on the first 3% elective deferral or a 2% uniform contribution to all eligible employees, regardless of whether they made elective deferrals. The employer can elect a lower matching contribution in two out of five consecutive years.

Advantages of a Simple IRA Plan

  • A SIMPLE plan is not subject to nondiscrimination tests or top-heavy requirements.
  • If the SIMPLE IRA format is used there is no requirement to file IRS Form 5500, reducing administration.
  • Plan administration costs are low, and highly paid or owner-employees are not restricted in their abilities to defer due to low participation by lower-paid employees.