SIMPLE IRA FAQs

SIMPLE IRA FAQs Overview

A Security Benefit SIMPLE IRA offers you turnkey sales support to reduce your administrative workload, while providing your small business clients an easy way to provide a retirement plan for their employees. Not only are SIMPLE IRAs, well simple, they are inexpensive and straightforward to set up.

  • No cost to establish
  • No government forms to file
  • No annual reporting
  • No non-discrimination testing
  • Pretax salary deferrals 
  • Minimal employer involvement

Below are some frequently asked questions. You can find more on Establishing a SIMPLE IRA, Contributing to a SIMPLE IRA, and Rollovers and Distributions. Visit our SIMPLE IRA page to learn about the Security Benefit SIMPLE IRA.

What is a SIMPLE IRA plan?

A SIMPLE IRA plan (Savings Incentive Match Plan for Employees) is a retirement plan that allows employers and employees of small businesses with 100 or fewer employees to make tax-deferred contributions to a retirement plan. Employees may choose to make salary reduction contributions and the employer must make either matching or non-elective contributions.

How long have SIMPLE IRA plans been available?

In 1996, the Small Business Job Protection Act was passed by Congress. This act included the implementation of the SIMPLE IRA which streamlined the administration of defined-contribution plans and allowed small businesses to offer benefit plans previously only available by larger employers. 

What are the benefits of a SIMPLE IRA vs. other plan types like a 401(k) plan?

A SIMPLE IRA plan has many advantages, including:

  • A SIMPLE IRA plan is easier than other plans to set up and run.
  • All contributions from the employee and employer are 100% vested. 
  • There is no cost to set up a SIMPLE IRA.
  • Administrative costs are generally lower than a 401(k) plan.
  • You do not have to file annual Form 5500 reports.
Does a SIMPLE IRA fall under ERISA?

No, a SIMPLE IRA plan is not subject to ERISA.

What other resources are available regarding SIMPLE IRA plans?

Security Benefit has many resources available for SIMPLE IRA plans.  Our resources include: 

Additional information about SIMPLE IRA plans can be found on the IRS website.

Can a SIMPLE IRA plan have a loan feature?
  • No, loans are not allowed on a SIMPLE IRA plan.
What are the tax implications for early withdrawals from a SIMPLE IRA?

You must pay a 10% additional tax on the taxable amount you withdraw from your SIMPLE IRA if you are under age 59 ½ when you withdraw the money unless you qualify for another exception to the tax.  For withdrawals within two years as measured from when you first participated in the SIMPLE IRA Plan, the penalty tax is increased from 10% to 25%.

The following are some exceptions to early withdrawal penalty tax:

  • Distributions for medical expenses 
  • Distributions made to a beneficiary or estate after the individual's death
  • Distributions to unemployed individuals for medical insurance 
  • Distributions attributable to the individual's disability
  • Distributions used to pay higher education expenses 
  • Distribution for first-time homebuyers
  • Distributions to qualified reservists 
  • Rollovers
  • Distributions to a former spouse pursuant to a divorce decree
  • Conversions to a Roth IRA
  • Qualified birth or adoption distribution 
  • Distributions for individuals with a terminal illness

For more information on exceptions to early withdrawal, please visit the IRS website.

Who maintains the plan documents for the SIMPLE IRA plan?

The IRS 5304-SIMPLE Form acts as the plan document.

What tax reporting is required with a SIMPLE IRA plan?

There is no tax reporting requirement (outside of indicating contributions on a W-2) for a SIMPLE IRA plan.

Is a 5500 Form required to be filed for a SIMPLE IRA plan?

No.


FINANCIAL PROFESSIONAL USE ONLY — NOT FOR USE WITH CONSUMERS

Security Benefit, its affiliates and subsidiaries, and their respective employees and representatives, do not provide tax, accounting, or legal advice. Any statements contained herein concerning taxes were not intended as and should not be construed as tax advice, nor should they be used for the purpose of avoiding federal, state, or local taxes and/or tax penalties. Please seek independent tax, accounting, or legal advice. 

Services are offered through Security Distributors, a subsidiary of Security Benefit Corporation (Security Benefit).
 

SB-10042-14 | 2023-12-05