SELF-DIRECTED SIMPLE IRA
A Savings Incentive Match Plan for Employees (SIMPLE IRA) is a salary reduction plan for small businesses and/or the self-employed. As long as your business does not sponsor another retirement plan, you can offer this account to your employees and even take advantage of the benefits yourself. The startup cost and administrative fees are less than a 401(k), and this plan is a great strategy to lower your business’s tax liability. Employees elect to defer a percentage of compensation, pre-tax, each pay period. The employer contributes the salary deferral and the employer’s matching amount to the employee’s account.
If you want control over your retirement funds and investing decisions, a self-directed SIMPLE IRA is a great savings plan. You choose your own assets from a class of alternative investments outside the Wall Street norm to diversify your retirement portfolio.
- Small businesses (100 or fewer employees) can offer retirement benefits to attract employees
- Employer match: elective contribution (typically 3% of the employee’s salary) OR a non-elective contribution (2% of the employee’s salary)
- Contributions and earnings are not taxed until withdrawn
- The employer may not have to make contributions for employees who don’t participate
- A self-directed SIMPLE IRA can invest rentals, rehab-and-flips, futures and forex trading, cryptocurrency, and more
NOTE: You cannot transfer funds to any other retirement plan (IRA, SEP, or Roth) within the first two years of opening a SIMPLE account. But, you ARE able to move funds from a typical SIMPLE plan into a self-directed SIMPLE IRA any time.
Distributions are included in your annual income and subject to income tax. If you are under the age of 59 ½, there is a 10 percent early withdrawal penalty in addition to the income tax that may be due.
There are a few exceptions to the 10-percent penalty including if you inherited the IRA, if you are paying qualified education expenses for yourself or dependents, and if you are a first-time home buyer (up to $10,000). Consult with a financial professional for more information.
Roth SIMPLE IRA Contribution Provisions per the SECURE Act 2.0
Section 601 of the SECURE Act 2.0 that passed in late 2022 allows for Roth SIMPLE IRA contributions, effective for tax years beginning in 2023 and after. This is a great benefit for plan owners who desire tax-free distributions in retirement—the distributed portions of Roth contributions from their plans will be tax free. There is no need to open a new account to begin Roth contributions; you can begin making them to an existing SIMPLE plan. Consult with your tax professional or financial advisor to ensure adherence with IRS rules regarding Roth SIMPLE IRAs.
Which Small Business Plan is Right for You?
Download our Chart to Compare the Features & Benefits of Solo 401(k), SEP, & SIMPLE Plans
Contribution Limits of a Self-Directed SIMPLE IRA
|Employee Salary Deferral||$14,000||$15,500|
|Salary Deferral Catch-Up (age 50 and older)||$3,000||$3,500|
|Employer Matching Contribution||Between 1-3% of employee’s compensation||Between 1-3% of employee’s compensation|
|Employer Non-Elective Contribution||2% of employee’s compensation||2% of employee’s compensation|