Now more than ever, workers recognize the importance of retirement savings, and when weighing job opportunities, employer-sponsored plans are one of their top deciding factors. A smaller employer, however, may not be equipped with the resources to offer the benefits they’re looking for. This is where a SIMPLE retirement plan can help.

Find out how the simplicity and tax benefits of this retirement solution can benefit you, your business, and your employees.

What Is a SIMPLE Retirement Plan?

A Savings Incentive Match Plan for Employees, also known as a SIMPLE IRA, is a type of employer-sponsored retirement plan that allows your employees to boost their retirement savings with tax-deferred dollars. Built specifically for small businesses, these plans allow you to avoid the costs, regulations, and administrative work often associated with traditional IRAs and other retirement plans.

How Does It Work? Key Information About SIMPLE IRA Plans.

Types of SIMPLE IRA contributions

Although they may choose to, employees are not required to make minimum contributions to their accounts. Employers, on the other hand, must make contributions, and there are two options they can choose from:

Elective employee contributions: If employees choose to make contributions, employers must make a dollar-on-dollar match of up to 3% of the employee’s annual compensation. Employees have a contribution limit of $15,500 in 2023, with individuals over age 50 being allowed an additional catch-up contribution of $3,000.

Nonelective contributions: Whether or not employees make contributions, employers must contribute a flat 2% of the employee’s annual compensation. In these cases, employers cannot exceed the annual limit, which is $330,000 in 2023.

Employer qualification

According to the IRS, any business, including self-employed individuals and tax-exempt organizations, may set up SIMPLE plans if it employs fewer than 100 employees and does not offer other retirement plans.

Employee qualification

Any employee is eligible to participate if they’ve received at least $5,000 in compensation from the employer over the course of two consecutive or nonconsecutive calendar years. They must also be expected to earn $5,000 in the year the plan is first executed.

Establishing your SIMPLE IRA plan

The process of setting up a SIMPLE IRA plan for your small business is relatively simple. First, you must select a qualified financial institution and execute a written agreement using Form 5304-SIMPLE or Form 5305-SIMPLE. From there, you must provide employees with information about the plan, after which you can create a custodial or trust account for each employee.

Why Consider Offering Them at Your Small Business?

Gain tax advantages

All employer contributions can be deducted on your business’s tax return. Additionally, business owners can receive a tax credit of up to 50% of their SIMPLE IRA startup costs, but credits are capped at a maximum of $500 per tax year.

Help your employees

Similar to other employer-sponsored plans, a SIMPLE IRA allows employees to reduce their taxable income through contributions, which grow tax-deferred until distributions are taken in retirement. Additionally, employees are always 100% vested in their SIMPLE IRA money. Other types of accounts, such as 401(k)s, sometimes use “graded vesting,” which requires employees to remain at the company for a certain period of time before they become fully vested.

Establish and run your plans easily

Compared to other retirement plans, SIMPLE IRAs are simple to establish and manage. There are generally fewer administrative costs and regulatory requirements, making it easier for small businesses to offer sought-after retirement benefits to their employees.

Want to learn more about whether a SIMPLE retirement plan is the right fit for your small business? Ironwood Wealth Management can help. Reach out today to get started.