How Simple is the SIMPLE? – IRS Form 5304 and 5305

For many employers with fewer than 100 employees, the easiest and most cost-effective way to offer retirement plan benefits is through the SIMPLE IRA. In the mid 1990’s, the SAR SEP or Salary Reduction Simplified Employee Pension Plan, was discontinued and replaced by the Savings Incentive Match Plan or SIMPLE. This plan enables employees with at least $5,000 in annual compensation to defer as much as $12,000 of pre-tax dollars. The employer has the choice to match $1:$1 up to 2% of compensation for all eligible employees or $1:$1 up to 3% of participating employee contributions. The one caveat, which is quite frankly confusing to me, is that the IRS imposes a 25% penalty for SIMPLE funds moved within 2 years of participation, even if the dollars are rolled into an IRA, with limited exception. Unlike many other plans, the SIMPLE does not require annual form 5500 filing or other paperwork filing with the IRS. Employers simply need to provide annual notification to employees of the plan details and administrative information. Each employee account is self-directed, so I have built plans which have basic investing education for employees as a key component.

Establishing a retirement plan is an important aspect of a solid employee retention program. It also provides a way to provide a meaningful positive impact on the financial futures of your staff and their families. Please call today to discuss how this fits your situation, you will be amazed at how easy it is to get started! 🙂

p.s. you will also be eligible for a tax credit during the first 3 years!

© 2013 Pawleys Investment Advisors, LLC. All rights reserved.

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