A Simple IRA, or Savings Incentive Match Plan for Employees, is a type of retirement plan that is meant to be both easy to administer for employers and accessible for employees. It is a great way for small businesses to provide retirement benefits to their employees without the hassle and expense of setting up a traditional 401(k) plan.
Here is everything you need to know about Simple IRA agreements:
1. Determining Eligibility
To be eligible for a Simple IRA, employees must have earned at least $5,000 in compensation during the previous calendar year and be expected to earn at least that much in the current year. They must also be employed by the company for at least two years.
2. Employee Contributions and Match
Employees can contribute up to $13,500 to their Simple IRA each year, with an additional $3,000 catch-up contribution allowed for those over the age of 50. Employers are required to make a contribution to the plan as well, either by matching employee contributions dollar-for-dollar up to 3% of their compensation or by making a non-elective contribution of 2% of each employee`s compensation.
3. Administration and Record Keeping
Employers are responsible for keeping track of employee contributions and matching, and for sending the funds to the Simple IRA plan administrator. The plan administrator is responsible for investing and managing the funds, and for providing documentation and reporting to the employer and employees.
The vesting period for Simple IRA contributions is immediate, meaning that all employee contributions and employer matches belong to the employee right away.
In summary, a Simple IRA agreement is a great option for small businesses looking to provide retirement benefits to their employees. It is easy to administer and accessible to employees, making it a win-win situation for everyone involved. If you are interested in setting up a Simple IRA plan for your business, consult with a financial advisor or IRA plan administrator to get started.