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Create a SIMPLE IRA Before October 1

  • 11 August 2015
  • Author: Cari Holbrook
  • Number of views: 3454
Create a SIMPLE IRA Before October 1

SIMPLE IRA plans provide great advantages for self-employed individuals and small business employers, since they don’t require the start-up and operating costs associated with conventional retirement plans.

October 1 is a notable date for those who plan on establishing a SIMPLE IRA. By this date, you can establish a new SIMPLE IRA for the existing calendar year, as long as you have never set one up before. (If there’s already one in existence, the IRS states that a new one can be set up only to be effective the upcoming January 1.)

This is a key point, since missing the October 1 deadline means no funding can happen in 2015. No funding in 2015 means no tax advantages from this IRA on your 2015 tax return.  

In order to provide a SIMPLE IRA for your business (or for yourself, if you’re self-employed), you may need to follow certain restrictions and you must intend to contribute each year with either a matching contribution of up to 3 percent of compensation or 2 percent non-elective contribution for each eligible employee.

The IRS offers three (simple) steps to establishing a SIMPLE IRA plan:

  • Execute a written agreement to provide benefits to all eligible employees.
  • Give employees certain information about the agreement.
  • Set up an IRA account for each employee, done through a Form 5304-SIMPLE5305-SIMPLE, a SIMPLE IRA prototype or an individually designed plan document.

Of course, when it comes to the IRS, nothing is truly simple. You’ll want to be sure the plan is right for you and your employees. With SIMPLE IRA plans, participant loans are not permitted, in-service withdrawals are, but can include an additional 10 percent tax for those under the age of 59 ½ and additional 25 percent tax for withdrawals made within the first two years. And, unlike Roth IRAs, SIMPLE IRA plans do require minimum distribution at 70 ½, which may or may not be a benefit for you and your employees.

Feel free to contact us to help you weigh your options. But, be sure to do it ASAP before you miss out on opportunities for 2015! For related topics, check out our posts on SIMPLE 401(k)s and IRA contributions.

Image Copyright: Gajus / 123RF Stock Photo


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