SIMPLE Tax Savings!

December 29, 2011

Everyone is interested in a way to grow their money tax free.  For small business owners and employees alike, a SIMPLE IRA may be the very simple answer!  A SIMPLE IRA plan (Savings Incentive Match PLan for Employees) allows employees and employers to contribute to traditional IRAs set up for employees.  

It is ideally suited as a start-up retirement savings plan for small employers not currently sponsoring a retirement plan.  SIMPLE IRAs offer tax savings for the business owner and employee.  Employer contributions are deductible as a business expense, while plan participants can enjoy the benefits of tax-deferred growth of their pre-tax contributions.

A SIMPLE (Savings Incentive Match Plan for Employees of Small Employers) IRA plan offers great advantages for businesses that meet two basic criteria.  First, your business must have 100 or fewer employees (who earned $5,000 or more during the preceding calendar year). Secondly, you cannot maintain any other employer-sponsored retirement plans.  A SIMPLE IRA plan provides you and your employees with a simplified way to contribute toward retirement.  It can reduce taxes and, at the same time, give you a step up over your competition and help you attract and retain quality employees.  And, compared to other types of retirement plans, SIMPLE IRA plans offer lower start-up and annual costs.

SIMPLE IRAs are easy to set up and run. Typically, your financial institution can handle all the details, and employees can contribute on a tax-deferred basis through payroll deductions.  As the employer, you are required to either make a non-elective payment of two percent of compensation to everyone who is eligible for the plan or match the employees’ contributions up to three percent of their compensation for the year. (All employees must receive the same match, but you can change the percentage from year to year.)  Money in the plan is 100 percent vested; employees can take all of the funds in their account with them when they leave the company.   Tax benefits are not only for the employees. As an employer, you may be eligible for a tax credit of up to $500 per year of the first three years for the cost of starting a SIMPLE IRA plan.  Not only are startup costs low and plan administration easy, you also are not required to file annual financial reports.  

For small business owners who want to save more for their own retirement, the Simple IRA contribution limits may be more generous than other retirement account options. That’s because both the company and the individual can contribute, meaning that even self-employed people get to benefit because they can effectively match their own contribution, giving them the ability to contribute almost double the amount of a Traditional IRA retirement account.

Saving for retirement should be easy if not SIMPLE.  At Wallace & Associates we can help you plan and implement the best retirement strategy for you or your company.