The Savings Incentive Match Plan for Employees: SIMPLE IRA

SIMPLE IRAs are designed for employers to make it easy to offer benefits to themselves and employees. Employees choose their own retirement plan and designate a portion of their salary to be deposited (before tax) into these accounts.

These plans are attractive because they offer low start-up and administrative costs. Also, because it is a salary reduction plan, all contributions are made pre-tax—and reduce not only the employees’ taxable income, but business tax, as well.

It really is that simple, hence, the name. And, here’s how it works.

SIMPLE IRA Eligibility Requirements

SIMPLE IRAs are used by small businesses (with less than 100 employees) that do not offer another employer-sponsored plan. Self-employed individuals are considered both an employer and an employee in this plan, provided they earn income.

To be eligible to participate in a SIMPLE IRA, employees must have received at least $5000 in wages in any two previous years before participation in this plan can begin. Additionally, the employee should expect to receive at least $5000 of compensation in the upcoming year.

In most cases, employees can designate an institution of their choice to administrate the SIMPLE IRA. These plans can also be self-directed, allowing account holders control over their retirement funds and the ability to choose their own investments.

Contributions to a SIMPLE IRA

Employees choose their own contribution amount, and employers are required to deposit an additional amount on behalf of the employee. An employer can choose to match up to 3 percent of an individual employee’s compensation or the employer can choose not to match, but to contribute 2 percent to all employees’ plans. However, the non-elective 2 percent match cannot be calculated on more than $250,000 of an employee’s income. All contributions grow in the account tax-free. Taxes are paid on distributions when the account holder retires at whatever the taxable income rate is at that time.

2016 Contribution Limits

For the year 2016, contributions can be made up to $12,500 (with a catch-up allowance of $3,000 if 50 years or older), plus the employer’s contribution of up to 3 percent of compensation.

The Benefits of Self-Directed SIMPLE IRAs

As mentioned earlier, these retirement plans can be self-directed. A self-directed account is no different than any other IRA with one essential exception: instead of having a typical plan administrator or broker choose investments for you, you choose the assets based on your own knowledge and expertise. Typical retirement plan brokers sell their own investments, which are generally stocks, bonds and mutual funds. Self-directed plans are able to invest in alternative assets that exist outside the Wall Street norm. And, there are a plethora to choose from, making self-direction an attractive way to add critical diversity in retirement portfolios.

Alternative assets include real estate, private notes and mortgages, gold and other precious metals, private equity and stock, timberland, oil and gas options, crowdfunding opportunities—and much more. In fact, the only investments not allowed in self-directed plans are life insurance contracts and collectibles as defined by the IRS. Outside of those restrictions, you have the freedom to find what you know best and invest.

Get Started Self-Directing a SIMPLE IRA Today

As one of the nations leading self-directed retirement plan administrators, Advanta IRA makes it simple for clients to use these accounts.

Advanta IRA neither sells investments nor do we give investing advice, but we do provide powerful educational tools that help individuals learn about different plans and investing opportunities. We teach self-directed plan owners how to use these accounts to achieve tax-sheltered retirement income by investing in what they know and understand.

We administrate the fine details required in helping our clients maintain account that are compliant within IRS rules and regulations—so they can concentrate on finding the right investments they believe will succeed in building the retirement income they need and desire.

Interested in learning more? Contact us!

About Jack Callahan

Jack proudly earned his bachelor’s degree in finance and multinational business from Florida State University and his law degree from the University of Florida College of Law. He established Advanta IRA in 2003 and has steadily nurtured and grown the company and the team every year since. Prior to founding Advanta IRA, Jack delivered specialized counsel to real estate investors, small business owners, and real estate professionals on tax, legal and financial matters. As an industry expert, Jack is a frequent speaker on self-directed retirement plans. He is an accredited continuing education instructor for the Florida and Georgia Bar Associations, Florida and Georgia Real Estate Commissions, and The American Institute of Certified Public Accountants.