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.
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.
Employer: is required to make contributions in the SIMPLE IRA:
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)
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
SIMPLE IRA contributions and earnings are subject to state and federal income tax, penalties also apply if withdrawn before 59 ½ years old or the two year penalty, see below.
There is a 25% IRS additional tax if withdrawn prior to two years from the first deposit into the participant’s account.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.
Stocks, bonds, mutual funds, ETF’s, options, treasury bills & notes, CD’s
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.