If your small business doesn’t offer its employees a retirement plan, you may want to consider a SIMPLE IRA. Offering a retirement plan can provide your business with valuable tax deductions and help attract and retain employees. For a variety of reasons, a SIMPLE IRA can be a particularly appealing option for small businesses. The deadline for setting one up for this year is October 1, 2019.
The basics
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As the employer, you can choose from two contribution options:
1. Make a “nonelective” contribution equal to 2% of compensation for all
eligible employees. You must make the contribution regardless of whether the
employee contributes. This applies to compensation up to the annual limit of
$275,000 for 2018 (annually adjusted for inflation).
2. Match employee contributions up to 3% of compensation. Here, you contribute
only if the employee contributes. This isn’t subject to the annual compensation
limit.
Employees are immediately 100% vested in all SIMPLE IRA contributions.
Employee contribution limits
Any employee who has compensation
of at least $5,000 in any prior two years and is reasonably expected to earn
$5,000 in the current year, can elect to have a percentage of compensation put
into a SIMPLE IRA.
SIMPLE IRAs offer greater income deferral
opportunities than ordinary IRAs, but lower limits than 401(k)s. An employee
may contribute up to $12,500 to a SIMPLE IRA in 2018. Employees age 50 or older
can also make a catch-up contribution of up to $3,000. This compares to $5,500
and $1,000, respectively, for ordinary IRAs, and to $18,500 and $6,000 for
401(k)s.
A SIMPLE IRA might be a good choice for your small business, but it isn’t the
only option. Contact your trusted advisor to learn more about a SIMPLE IRA or
to hear about other retirement plan alternatives for your business.
Contact your trusted advisor with any questions.
