#Savings for Retirement
The SIMPLE IRA is an excellent choice for small businesses, especially those with less than 100 employees who each earn over $5,000 a year. It’s known for its easy setup and management. This retirement plan is different because it lets businesses pick how they contribute to their employees’ retirement savings.
There are two ways a business can contribute:
- Elective Contributions: The business matches 1-3% of what each employee contributes. There’s some leeway here — for two out of every five years, the business can choose to match less.
- Nonelective Contributions: The business gives a flat 2% of each employee’s pay to their retirement plan, regardless of whether the employee contributes themselves.
What’s great about the SIMPLE IRA is that any age employee can join, making it more inclusive.
Setting up a SIMPLE IRA is also straightforward. Businesses use one of two IRS forms:
- Form 5304-SIMPLE: This lets employees choose where they want their contributions to go.
- Form 5305-SIMPLE: All contributions go to a financial institution chosen by the employer.
This choice in setup means businesses can align the plan with their unique way of operating.
Summary
- Who it’s for: Small businesses with <100 employees earning >$5,000/year.
- Flexibility: Elective (1-3% match) or nonelective (flat 2%) contributions.
- Inclusivity: No age limit for employee participation.
- Easy Setup: Choose between IRS Form 5304-SIMPLE or 5305-SIMPLE.
