SIMPLE IRA is a savings incentive match plan for employees of small businesses that allows both you and your employees to make contributions to the retirement plan. Employees make elective deferral contributions that are excluded from their income for federal income tax purposes. Employers make either a matching or non-elective contribution that is tax deductible. A SIMPLE IRA can help you with recruiting and retaining employees.
- Sole proprietorships, partnerships, limited liability companies (LLCs), or incorporated businesses, including subchapter S corporations with 100 or fewer employees, may establish a SIMPLE IRA Plan.
- No other business retirement plan can be in force for the same calendar year.
- All eligible employees must be allowed to participate in the SIMPLE IRA Plan.
- All plan contributions are 100% vested immediately.
- SIMPLE IRAs must be established by October 1 to be effective for the current calendar year.
- Any investment earnings grow tax deferred until withdrawn.
- Generally, the 10% tax penalty on distributions applies to participants under the age of 59½. However, for withdrawals during the two-year period beginning on the date of the first contribution, the tax penalty is 25%. Participants will have to pay federal income tax on the distributions.
- Employees must have received at least $5,000 in compensation from the employer during any two years preceding the current calendar year.
- Employees must be reasonably expected to receive at least $5,000 in compensation from the employer in the current calendar year.
- Less restrictive eligibility requirements can be established.
- The owner may make salary deferral contributions of up to $15,500 ($19,000 for age 50 and over) in 2023.
- There are no annual reports to file with the IRS.
- Contributions can be electronically submitted after each pay period.
- The employer may choose a match of 3% or may use a 2% non-elective formula for all eligible employees. This contribution is tax deductible to the employer.
Securities distributed by State Farm® VP Management Corp.
Securities are not FDIC insured, are not bank guaranteed and are subject to investment risk, including possible loss of principal.
Neither State Farm® nor its agents provide tax or legal advice.