Savings Incentive Match Plan for Employees (SIMPLE) is a perfect IRA strategy for businesses of 100 or fewer employees who have earned $5,000 or more during the prior year. The key element of this form of IRA is that as its name states, it is simple for the employer to put a SIMPLE IRA into place.
Besides being easy for the employer to set up, he can leave administration of the plan up to his financial institution or planner who can help the employer, and the employees make intelligent and well researched decisions on the types of investments in which they can choose to put their dollars. The financial planner can take over the administration of the plan, thereby eliminating the employer’s extra maintenance and administrative costs. The employer has no requirement to file annual financial reports.
Employers also like the plan because they can earn tax credits up to $500 per year for three years to defray the costs of implementing a SIMPLE IRA. They also have options on how they can fund the plans. Some choose to utilize a matching plan concept, in which they will match employee contributions up to 3% of their earnings. The other option open to them is to implement a fixed contribution plan, with no employee participation. All eligible employees must be enrolled in the plan. If they choose to opt out of a matching fund, they can do so. However, if they choose to re-enter the IRA program, they must wait until the next calendar year.
For good reason, employees in higher earning brackets favor the employer matching fund concept. Others, particularly lower income employees, often prefer the non-participating fund because they have no cash outlays to be concerned with, and their take home pay is greater. Whichever plan an employer chooses can pay dividends as far as increased company morale and employee retention.
Employees are able to contribute to their portion of the SIMPLE IRA with tax deferred dollars. Employers allow employee contributions to the IRA to be made through payroll deductions, which makes participation in the plan even more SIMPLE.
When the plan is put in place, the employer must disclose information about the fund to the employees concerning their rights and responsibilities. He must also present them with their options about the direction of their plans and update employees on any changes that have a bearing on their contributions.
Once an employer starts participating in a SIMPLE IRA, he is not allowed keep other retirement plans in place. If employees have enrolled in a 401k retirement plan previously supplied by the employer, they have the option of keeping the 401K intact if the funds in the plan meet a certain dollar amount. It may make sense to roll that money into your SIMPLE IRA or into a Roth IRA if company rules allow. There, it can grow without tax consequences. Usually you need two years of participation in the company SIMPLE IRA before you can take that step.
Your financial planner should be consulted any time you consider moving funds in or out of your IRA or 401k.