SIMPLE-IRA (Savings Incentive Match Plan for Employees)
A comfortable retirement is considered the reward for a lifetime of hard work. But when you’re running a small business, you may be too busy with today’s demands to “go shopping” for a retirement plan. You know all the reasons why you should have one. But you wonder where you’ll ever find the time to sort through all of the different types available. And if you would decide on one, where would you find the time to take care of all the details that come with it?
Fortunately, Hilliard Lyons offers some alternatives to high-cost, high-maintenance retirement plans. One such plan is the SIMPLE-IRA. Like the SEP-IRA, SIMPLE-IRAs have been designed specifically with America’s small businesses and self-employed individuals in mind. They’re easy — and affordable — to establish and to maintain.
Why let any more time slip by? Remember, time is on your side. The sooner you start a plan, the more time you and your employees will have to build a comfortable retirement. And the better the chance that it will indeed be rewarding.
Employers Who Can Establish a SIMPLE-IRA
Employers of all types — sole proprietorships, partnerships, corporations including Subchapter “S” corporations, independent contractors — are eligible to establish a SIMPLE-IRA, if they meet these two requirements:
- They had a maximum of 100 eligible employees in the preceding year, who received at least $5,000 in compensation in the preceding year
- They do not currently maintain another employer-sponsored retirement plan
Tax-exempt organizations and governmental entities that meet these criteria are also eligible.
A retirement plan designed for small business and self-employed individuals.
Contact your Wealth Advisor for more details.
Employees Who Can Participate
Any employee who meets these two criteria is eligible:
- Received $5,000 or more in compensation in each of two prior years
- Is expected to earn $5,000 in the current year
Employers may make these criteria less restrictive.
Employer Contributions to the SIMPLE-IRA
Employer contributions are flexible and can be adjusted annually to suit a company’s situation. Employers can choose the level of contribution they will make to employees’ accounts from these two contribution formulas:
- 3% matching contribution formula: Employer matches what the participant contributes to his or her own account — dollar for dollar — up to 3% of the employee’s compensation.
- 1% or 2% match: Available in any two years out of a 5-year period, this reduced match works in the same manner as the 3% match.
- 2% non-elective contribution formula: Whether or not an eligible employee makes any contribution to his or her own account, the employer contributes an amount equaling 2% of compensation to each employee’s account. The maximum compensation level on which this contribution is calculated is $275,000, resulting in an employer-contribution cap of $5,500 per employee.
Vesting: All contributions must be fully vested.
Employee contributions are optional. Eligible employees, including the employer, may contribute a maximum of $12,500 of their compensation. Employees age 50 or more may contribute an additional $3,000.
Tax Advantages for the Employer
Tax deductibility: Any contributions that employers make to their employees’ and their own accounts may be considered tax-deductible business expenses for federal tax purposes, subject to certain statutory limits.
Tax Advantages for the Employees
Pre-tax dollars: Employee contributions are deducted from their pay before current income taxes are calculated and withheld. Because current income is reduced, an employee’s current tax bill may also be reduced.
Tax-deferral: All contributions and any growth of the SIMPLE-IRA are tax-deferred, that is, not subject to current taxation. Taxes will not be due until the account holder begins to withdraw money from it.
No annual plan report: No report needs to be filed with the IRS.
Investment Education for Every Participant
At Hilliard Lyons, we supply your business with the key items needed to establish a SIMPLE-IRA, including adoption agreements and applications for review by your legal counsel.
We also make available to you and your employees a broad menu of non-FDIC-insured investment choices. You can invest your plan accounts in individual stocks and bonds, plus mutual funds from a number of leading fund companies. And when it comes to making your investment decisions, you’re not left on your own. One of our Wealth Advisors will be available to provide you and your employees with investment education so that you can construct a portfolio tailored to your individual investment personality, risk tolerance and timeline.
Securities and advisory services offered through J.J.B. Hilliard, W.L. Lyons, LLC, a registered investment advisor and broker dealer. Member NYSE, FINRA & SIPC. Investing in securities involves risk, including possible loss of principal. ©2018. All rights reserved.
J.J.B. Hilliard, W.L. Lyons, LLC | Member NYSE, FINRA, & SIPC