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If I Want to Establish a SIMPLE IRA, Do I Have to Establish One for All Employees of My Business?

If you are considering establishing a SIMPLE IRA (Savings Incentive Match Plan for Employees) for your business, the general answer is "Yes," you must offer a SIMPLE IRA account to every eligible employee. However, there are a few exceptions and considerations to keep in mind. In this article, we will explore the requirements and exceptions surrounding the establishment of a SIMPLE IRA and provide a comprehensive understanding of this retirement savings plan.

What is a SIMPLE IRA?

A SIMPLE IRA is a tax-deferred retirement savings plan designed for small businesses with 100 or fewer employees. It stands for "Savings Incentive Match Plan for Employees." This type of retirement plan offers employers a relatively straightforward and cost-effective option for providing retirement benefits to their employees. It allows eligible employees to contribute a portion of their salary to the plan, while employers have the choice of making either a non-elective contribution or a matching contribution based on the employee's contributions.

Establishing a SIMPLE IRA: General Requirements

In most cases, if you decide to establish a SIMPLE IRA, you must offer this retirement savings plan to all eligible employees. An employee is considered eligible if they have earned at least $5,000 in compensation during any two previous calendar years and are expected to earn at least $5,000 in the current year. If an eligible employee is unwilling to participate, the employer must still open a SIMPLE IRA on their behalf.

However, there are exceptions to this general rule. Employees who are not eligible, nonresident aliens, and union employees who receive retirement benefits through a union plan can be excluded from participating in the SIMPLE IRA. Additionally, employers have the flexibility to establish certain eligibility requirements, such as a minimum period of time worked for the company, as long as these requirements do not contradict the minimum requirements set by the IRS. It is crucial to outline these eligibility requirements in a Summary Plan Description, which must be shared with employees at least 60 days before the start of each plan year.

Benefits and Considerations of a SIMPLE IRA

A SIMPLE IRA offers several benefits for both employers and employees. It is easy to set up, with minimal administrative responsibilities and lower costs compared to other retirement plans. Employers have the choice of making a non-elective contribution of 2% of the employee's salary or matching the employee's contributions up to 3% of their salary, providing flexibility in contribution options. For employees, a SIMPLE IRA offers a tax-advantaged way to save for retirement, with the potential for employer matching contributions.

However, it is essential to consider the limitations and drawbacks of a SIMPLE IRA. One limitation is that the contribution limits for a SIMPLE IRA are lower compared to other retirement plans such as a simplified employee pension (SEP) or a 401(k). Additionally, unlike a 401(k), a SIMPLE IRA cannot be rolled over into a traditional IRA without a two-year waiting period from the time the employee first joined the plan. This waiting period restricts the flexibility of transferring funds between retirement accounts.

Consultation and Professional Guidance

Establishing and managing a retirement savings plan like a SIMPLE IRA requires careful consideration and adherence to IRS regulations. It is always wise to consult a financial professional or tax advisor who can provide guidance tailored to your specific business and employee needs. They can help you navigate the complexities of setting up and administering a SIMPLE IRA, ensuring compliance with all legal requirements and maximizing the benefits for both you and your employees.

In conclusion, if you choose to establish a SIMPLE IRA for your business, it is generally required to offer it to all eligible employees. However, there are exceptions, and you have some flexibility in establishing eligibility requirements. By understanding the rules and seeking professional guidance, you can successfully establish a SIMPLE IRA and provide a valuable retirement savings option for your employees.


In general, the answer is “Yes,” but there are a few exceptions. If you decide to establish a SIMPLE IRA, every eligible employee must be offered a SIMPLE IRA account.

An employee is eligible if they have earned $5,000 in compensation during any two previous years, and are expected to earn $5,000 the current year. If an employee is unwilling to participate, the employer must open up a SIMPLE IRA on behalf of the employee.

Employees excluded from a SIMPLE IRA are those who are not eligible, nonresident aliens, and union employees who are included in a union retirement plan. However, you can establish certain eligibility requirements for a SIMPLE IRA such as period of time worked for the company, and so on, if they do not contradict the minimum requirements.

These will be outlined in a Summary Plan Description, which must be shared with employees by 60 days prior to the start of each plan year (normally by November 2). It is always wise to consult a professional to determine the rules for SIMPLE IRAs, since after you have established these rules, you cannot change them.

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