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What is a Simple IRA Plan?

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S&A Financial Services, Inc. Blog

This information can also be found on Small Business Financial Podcast , episode #2. 

Who is a Simple IRA good for?  Simple IRA's are good for those small business owners that have a few employees and would like to grow their business / retirement plan into something that's maybe more attractive to new hires down the road.  

Simple IRA's are just that, SIMPLE.  They're inexpensive to get started and to maintain going forward.  Simple IRA's, just like the traditional 401k, still have vesting and matching provisions.  

Who owns a Simple IRA?  Simple IRA's are IRA's owned by the employees.  Differences between "normal" IRA's and Simple IRA's is that the employer is contributing to them and the contribution limits / rules are different.

Should I use a Simple IRA?  I see, from my experience, two different types of small business owners using Simple IRA plans.... 

  1.   The small business owner that's just starting out, has a handful of employees, and would like to provide an easy (from admin perspective) way to help provide for employees retirement.  These owners, if they have aspirations of growth, will look to graduate towards a 401k as their business grows.
  2.   The small business owner that's trying to compete with larger companies for new hires.  A Simple IRA can look very similar to a new hire in the eyes of a new hire so this feature should help obtain and keep employees.  

How much do employers contribute to Simple IRA's?  There's really 2 options for employers as to how they contribute to their employees Simple IRA's...

  1.   Contribute 2% for ALL employees
  2.   Provide 3% match for employees (this is the default option).  This option only applies to those employees that wish to participate.  Instant vesting as well. 

Employees that wish to contribute more than the IRS limit into their Simple can do so through other IRA's.  They can open up a Roth or Traditional IRA, as well as their employer Simple IRA, and fund all IRA's up to the IRS limit.  The Roth and / or Traditional IRA would be an account that the employee would open up on their own - not through the employer. 

For Simple IRA's, there's no Form 5500 that needs to filed annually. 

Remember, as a small business owner, this is about as simple as it gets when it comes to your employer retirement plan.  Not much, if any, employer involvement other than setting up payroll contributions / matches into your employees accounts.  

From my experience, as I mentioned before, I'd go that extra step and make sure there's employee education regarding their plan / market updates.  You can get this type of help from a competent financial advisor.  I'd recommend a fee-only financial advisor. 

Below are some boilerplate info regarding your Simple IRA rules and regulations....

Who is Eligible? - Employers must have 100 or fewer employees and cannot maintain any other employer-sponsored retirement plan. Employees must have earned at least $5,000 from the employer in any 2 preceding years and be expected to earn at least $5,000 in the current year.

Tax Benefits - For participants: Tax-deferred growth potential and pre-tax contributions. For employers: Contributions are deductible as a business expense.

Who Contributes? - Funded by employee deferrals and employer matching contributions.

Contribution Amounts - 


  • Mandatory match or non-elective contribution. Mandatory 3% matching contribution or 2% non-elective contribution.


  • Up to a maximum of $13,500 for 2021 ($16,500 if age 50 or older) and $14,000 for 2022 ($17,000 if age 50 or older).

Withdrawals - 10% early withdrawal penalty (25% for first 2 years of plan participation) if under age 59½, subject to certain exceptions. Required minimum distributions starting at age 72.

Administration - Certain annual employee notifications must be made. No plan tax filings with the IRS are required.

Deadlines - For current tax year: Set up and notify employees by October 1. Deferrals and matching must be contributed within 30 days after the end of the month in which amounts would have otherwise been payable to the employee.

Matching contributions are due no later than the due date for filing your business's income tax return including extension.

Greg is a fee-only financial advisor at S&A Financial Services, Inc. that specializes in helping small business owners and their CPA's provide proactive and wholistic financial solutions.  

Other resources can be found here....

Small Business Financial Podcast

S&A Financial Services, Inc.  website 

Jump on MY CALENDAR for 15min phone conversation to see if the Simple IRA is right for you.


S&A Financial Services, Inc. is a registered investment adviser.  Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies.  Investments involve risk and, unless otherwise stated, are not guaranteed.  Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.

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