Easy Setup—Form 5304 SIMPLE, provided by the IRS is the form needed to set-up a SIMPLE IRA. This form will allow employees to choose where and how to invest in the SIMPLE IRA. Employers who wish choose to the financial institution for the plan will complete IRA form 5305-SIMPLE.
Affordable Setup—It is usually free to setup this type of small business retirement plan. If there is a cost associated with this plan, it can be written off as a business expense for tax purposes.
Affordable Maintenance—There will be no cost involved with maintenance of the plan since there is no administrator.
Easy Maintenance—Year-end paperwork for this plan is required, but it is simple and easy to read.
Higher Limits—This plan allows for contribution limits that are higher than traditional or Roth IRAs. In 2016 and 2017, employees could contribute up to $12,500. Also, employees over the age of 50 could make a catch-up contribution up to $3,000.
Matching Deductibles—Small business owners can use the money they put into these accounts as a tax-deductible business expense.
Mandatory Contributions—Employer contributions are mandatory regardless of how the business is performing.
Small Contribution Limits—Very low contributions limits make it difficult to effectively plan and save big for retirement.
Strict Opening Times—Accounts have to be opened by October 1 of each year to have an impact on taxes for the year.
|
Limited to smaller companies—This plan is limited to 100 or fewer employees. The plan will have to be changed if the business grows in the future.
Contributions count against 401K—For 2016 and 2017, the contribution limit for 401K plans is $18,000. Overall retirement options will be very limited due to this cap.
Stiff Penalties—Early withdraw from a SIMPLE IRA can be as high as 25%, as opposed to other retirement accounts which can be as high as 10%. Also, rollovers within the first two years of this type of plan will result in another stiff penalty.
|