Ira Comparison

Simple IRA Rules | Does Your Business Qualify?

Are you a business owner? Are you looking for a way to provide your employees with good retirement income at little cost to you? Do you employee fewer than 100 employees? If you answered yes to all four questions above then the perfect answer is in store- a Simple IRA! What is a Simple IRA? Well, we all know about the powers of a traditional IRA account, the opportunities and benefits it provides those individuals who are looking toward the future. And we also know about 401ks and the retirement benefits that are offered by them and the employers who provide them. But a Simple IRA is an even better tool for small business owners because it gives a great way to contribute to your employee’s retirement and your own retirement as well. However great these Simple IRA accounts are however, they often come with restrictions.

Here is the low down on all the Simple IRA rules:

• You must employ fewer then 100 employees. Many bigger businesses would jump at the chance of using a Simple IRA plan for their employees but once you exceed 100 employees you should start looking at 401k plans because you are considered a medium to large business (each counted employee must make at least $5,000 per year). This limitation includes any part of the calendar year. For instance, you can employ 115 employees for six months and 95 for another six months and you still cannot qualify for a Simple IRA because at some point in the year you had too many employees.
• You must set your Simple IRA plan up according to one of the two IRS forms (Form 5305- SIMPLE or Form 5304- SIMPLE) and it must be approved by the IRS before you can start. These plans are also available at banks, brokerages and insurance companies.
• You must inform all eligible employees of the benefits of the Simple IRA. In other words, you cannot just provide the service without letting your employees know about it because it is considered dishonest and if there is a complaint you can be fined. The information must be provided to the employees each year within two months of each employee’s election time.
• You must set up a separate Simple IRA for each qualified employee so that they have complete control over their own retirement funds. While you both are contributors to the account the employee has ownership.
• Simple IRA plans can only be held on a calendar year basis, not a businesses fiscal year. Further, a Simple IRA plan has to be set between the dates January 1 and October 1 for it to be effective.