SIMPLE IRA rules might seem daunting at first. Yet you should understand your employees deserve proper financial aid when it comes to their future retirement plans. For you to set an example, here are some points to ponder about SIMPLE IRA rules for small business:
7 SIMPLE IRA Rules | What You Need To Learn This 2018
1. Qualifications in Establishing a SIMPLE IRA Plan
Any employer can vouch for a SIMPLE IRA plan as long as your company has less than 100 employees – including self-employed individuals. Make sure your workers have a salary rate of $5,000 or more during the previous calendar year. One of the SIMPLE IRA rules to start your company plan is you (the employer) sign either a Form 5305-SIMPLE or Form 5304-SIMPLE.
2. Employer Contribution Options
It is mandated by the IRS that employers make a yearly contribution. You can either opt for a Matching Contribution – wherein you match your workers’ reduction contributions dollar-for-dollar, with a maximum of 3% for each of your employees’ compensation, or a Non-elective Contribution. The latter requires you, as an employer, to make a contribution of 2% the amount of an employee’s salary, whether the worker does or does not contribute. Take into account, the annual limit on compensation for 2018 is $275,000.
3. Contribution Limits for 2018
It is a sigh of relief that the contribution limit for 2017 is still the same for SIMPLE IRA participants this year. Keep in mind for your workers who are 49 years and below, $12,500 is the limit per year. For employees who are 50 years and above, they have a maximum contribution limit of up to $15,500. The extra $3,000 serves as a catch-up contribution.
4. Depositing Employees’ Contributions
Among the SIMPLE IRA rules, the IRS requires you to deposit your employees’ Matching Contributions or Employee Salary Reduction Contributions within 30 days after the end of each month. On the other hand, you can deposit Non-elective Contributions during your federal income filing due date.
5. Employee Cash Withdrawal from their SIMPLE IRAs
Just remind your employees that if they withdraw before they are 60 years old, the IRS requires them to pay not only the income tax, but an additional 10% penalty as well. However, for workers who opt to withdraw just within 2 years from participating in your company’s SIMPLE IRA plan, the penalty increases from 10% to 25%. Employees who are already 59 1/2 years old and above are not required to pay additional taxes.
6. Employee Money Transfers on SIMPLE IRAs
According to the SIMPLE IRA rules set by the IRS, it is possible for employees to do money transfers. However, within the initial 2-year period, your employees can only transfer money from one SIMPLE IRA to another SIMPLE IRA. After this given duration, they can now make tax-free rollovers to another type of IRA.
7. Closing My SIMPLE IRA Plan
If you deem your SIMPLE IRA plan does not suit your business anymore, we suggest consulting your financial establishment first. Once you have found the proper plan, you may then notify your employees before November 2, 2018, of the changes that will take effect by January 1 of the succeeding year (2019). Do take into consideration the IRS will not allow you to terminate your SIMPLE IRA plan in the middle of the calendar year.
You are now well-aware of the 7 SIMPLE IRA rules you need to start your own business. Always make sure to coordinate with your employees and your chosen financial establishment in order for your company’s SIMPLE IRA plan to go on smoothly.
Which of these SIMPLE IRA rules have you ticked off your list already? Let us know in the comments section below!