Almost as simple to administer as the SEP is the SIMPLE IRA. The eligible employer rules are the same as they are with the SIMPLE 401(k) plan; accordingly, they are available to employers with 100 or fewer eligible employees earning at least $5,000 in the prior year. However, SIMPLE IRAs are more flexible and have less administrative expenses than the SIMPLE 401(k).
With a SIMPLE IRA, the employer sets up an IRA for each eligible employee. Contribution limits to a SIMPLE IRA are higher than those of a Traditional (individual) IRA.
SIMPLE IRA Key Points:
- Employer sets up and funds an IRA for each eligible employee. To be eligible, the employee must have received at least $5,000 in compensation from the employer during any two preceding years and be reasonably expected to receive $5,000 in compensation in the current year.
- Simple to install and administer.
- Allows larger contributions than a regular IRA.
- Ideal for small businessowners.
- Plan established with IRS Form 5305-SIMPLE or other document that satisfies statutory requirement (form can be obtained at irs.gov).
