As a small business owner, you know how important it is to attract great employees and keep them motivated. It can be challenging to provide benefits for those employees, but one great incentive you can offer is a retirement plan called a SIMPLE IRA. A Savings Incentive Match Plan for Employees (SIMPLE) is an IRA-based employer plan that will allow eligible employees to make contributions to their SIMPLE IRAs, and employers are required to make either matching or nonelective contributions.
There are a number of benefits that come along with a SIMPLE IRA. You provide your employees with a tax-advantaged retirement plan for their own money, but they also receive company contributions as well. SIMPLE IRAs act just like a 401(k) plan; money is invested pre-tax and then is taxed when money is withdrawn. However, the SIMPLE IRA is specifically designed for companies with fewer than 100 employees. It allows employers a tax deduction for the contributions they make to the plan, and the start-up costs and maintenance fees are much lower than other retirement plans.
Any type of sole proprietorships, partnerships, corporations and nonprofit organizations may establish a SIMPLE IRA plan, as long as the employer meets the eligibility requirements. Then the company is required to make either dollar-for-dollar matching contributions (no more than 3 percent of the employee’s compensation), or 2 percent nonelective contribution to all eligible employees regardless of whether they make deferral contributions. One difference between SIMPLE IRAs and 401(k)s is the employer contributions to the employee’s account vest immediately. For 401(k)s, employees generally have to work for the employer for a specified time period before becoming fully vested and receiving the employer’s contributions to their account.
So, if you haven’t established a retirement plan for your current and future employees, now is the time to start.