Establishing a SIMPLE IRA

Any business with no more than 100 employees can establish a SIMPLE IRA plan for employees who earned $5,000 or more during the preceding calendar year and do not currently have another retirement plan.

More specifically, employers must meet both of the following requirements:

• In the last calendar year, the employer had no more than 100 employees (including self-employed individuals) who earned $5,000 or more in compensation during the year. If you have a SIMPLE IRA plan but later exceed this 100-employee limit, you will be treated as meeting the limit for the two years following the calendar year in which you last satisfied the limit.
• The employer does not support another qualified plan to which contributions are made, or benefits accrued, for service in the calendar year. For this purpose, a qualified plan (defined in section 219(g)(5)) includes a qualified pension plan, a profit-sharing plan, a stock bonus plan, a qualified annuity plan, a tax-sheltered annuity plan, or a Simplified Employee Pension (SEP) plan. A qualified plan for employees covered under a collective bargaining agreement for which retirement benefits were the subject of good faith bargaining is disregarded if these employees are excluded from taking part in the SIMPLE IRA plan. 

If the failure to continue to satisfy the 100-employee limit or the one-plan rule described above is due to an acquisition or similar transaction involving the business, special rules apply. Consult your tax advisor to find out if you can still support the plan after the transaction.

Certain related employers (trades or businesses under common control) must be treated as a single employer for purposes of the SIMPLE IRA requirements. These are: 

1. a controlled group of corporations under section 414(b); 
2. a partnership or sole proprietorship under common control under section 414(c); or 
3. an affiliated service group under section 414(m). 
4. In addition, if you have leased employees required to be treated as your own employees under the rules of section 414(n), then you must count all such leased employees for the requirements listed above.

Yes, although contributions to the SIMPLE IRA plan cannot be based on the salary from the other business and if the employee is participating in another retirement plan the salary deferral contributions must be combined amongst both plans.

If the business closes, the plan should be terminated and rolled over to an IRA or other plan. 

You can set up a SIMPLE IRA plan effective on any date between January 1st - October 1st for the calendar year the contributions are made, provided you didn’t previously maintain a SIMPLE IRA plan.

A 5304-SIMPLE form is used to establish a SIMPLE IRA plan.  Additionally, the plan sponsor will need to complete the Employer Plan Data Request Form, the Form 5304-SIMPLE and all appropriate notices.

The employer must provide each employee with a copy of the completed Form 5304-SIMPLE and Model Notification to Eligible Employees.   

Each eligible employee must complete the IRS Model Salary Reduction Agreement, even if they choose not to take part. Additionally, Security Benefit requires employees to complete an account application to set up their account if they will be contributing or receiving Non-elective Employer contributions.