What is a SIMPLE IRA?

A SIMPLE IRA is an employer sponsored retirement salary deferral plan without the cost or administrative responsibilities associated with traditional 401(k) or 403(b) plans.

 Eligibility to Contribute

Employer and Employees can contribute at any time.

The company must have fewer than 100 employees and each employee must earn a minimum of $5,000 in compensation in the prior year.

 Maximum Annual Contribution

Employer: is required to make contributions in the SIMPLE IRA:

• 3% employee match, dollar-for dollar
• 2% of compensation for all eligible employees

Employees: Contribute up to 100% of compensation or $14,000 maximum for 2022, however this can not to exceed 100% of employee’s compensation (If you are 50+ years old, the contribution limits increase to $17,000 for 2022)

 Tax-Deductible Contributions

• Employers’ contributions are tax deductible from federal and state taxable income

• Employee can make pre-tax contributions which are deductible from state and federal taxable income

 Taxation of Earnings and Withdrawals

SIMPLE IRA contributions and earnings are subject to state and federal income tax, penalties also apply if withdrawn before 59 ½ years old or the two year penalty, see below.

 Withdrawal Penalties

There is a 25% IRS additional tax if withdrawn prior to two years from the first deposit into the participant’s account. After that, a 10% additional tax applies before age 59½ unless exception applies.

 Types of Investments: SIMPLE IRA

Stocks, bonds, mutual funds, ETF’s, options, treasury bills & notes, CD’s

Exceptions:

• Death
• Disability
• Medical expenses in excess of 10% of Adjusted Gross Income (AGI)
• Health insurance premiums if unemployed for 12 consecutive weeks
• Qualifying higher education expenses
• Qualifying first time home purchase ($10,000 lifetime limit)
• Qualified military reservist
• Substantially equal periodic payments made over life expectancy
• Involuntary IRS levies
• Conversion to a Roth IRA
• Up to $5,000 for qualified adoption / birth expenses

 Required Withdrawals (RMD)

Beginning in tax year 2020, the Required Minimum Distributions (RMDs) to start taking qualified distributions or withdrawals changed from age 70½ to age 72 (However, this does not affect participants who turned 70½ on or before 12/31/2019.)

If you are still employed by the employer sponsored retirement plan: 401(k), 403(b), Simple IRA or small-business account then your RMDs may be delayed until the year of retirement.

1. Keep in mind, some expectations do apply, and we recommend that you meet with your CPA or Tax Advisor.

ERISA Retirement Plan Startup Deadline:  SIMPLE IRA

• For years after 2020, 401(k) plans may be set up by the tax filing deadlines plus extensions.
• Employee salary deferral contribution(s) must be deducted from participants’ paychecks.
• Contributions must be made within 30-days after end of month
• Employer contributions or profit sharing may be made by the tax filing date plus allowable extensions.