How Can I Establish a SIMPLE IRA?

A SIMPLE IRA must be established by an employer with fewer than 100 employees. An employer can establish a SIMPLE IRA if they have no more than 100 employees who earned $5,000 or more during the preceding calendar year. The employer cannot have any other type of qualified retirement plan going while a SIMPLE IRA is in effect.

SIMPLEs should be established between Jan 1 and October 1 of the first year of the plan, unless the business started after that. Plans can be set up relatively quickly and can even use automatic enrollment if employees are given the ability to opt-out.

Every year, employees will be given a 60 day election window before Jan 1 to decide what they would like to contribute for the year. For employers and employees, their contributions should not change during the year, but employees are able to stop at any time.

It may mean that they are not allowed to resume their contributions until the beginning of the next plan year, however, most of the large brokerage houses and banks have standard SIMPLE IRA plan agreements. They will all have different investment choices and fee structures, so it is wise to shop around.

Employers should use IRS Forms 5304 and 5305 to establish a plan. Each employee’s information and signature must be obtained to establish their individual accounts.