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SIMPLE IRA
We all know that we need to save for retirement, and a SIMPLE (Savings Incentive Match Plan for Employees) IRA is an account designed for just that. Think of it as your own personal pension plan. The more you fund it, the better chance you’ll have at retiring someday on your terms – not someone else’s.
A SIMPLE IRA is an ideal retirement plan for a small company. Employee contributions are optional and a small company contribution is required.
Why choose a SIMPLE IRA for your business?
- A SIMPLE IRA is easy to set up and less complicated to administer than 401(k) plans or pension plans.
- A SIMPLE IRA may be established if you have 100 or fewer employees and your company does not maintain another retirement plan.
- Employees can participate if they earned at least $5,000 in the two immediately preceding years and are expected to earn at least $5,000 this year. If you prefer, the eligibility rules can be less restrictive.
How do I set up a SIMPLE IRA for my business?
- Download, print and complete the IRS Form 5304-SIMPLE Agreement. Then distribute copies to eligible employees and tell them to open a SIMPLE IRA at Sit Mutual Funds or an institution of their choice.
- NOTE: If it’s October, November or December, it’s too late to establish a SIMPLE IRA for this year (unless your business began during one of these months).
Employee Responsibilities
- Complete a payroll deduction form telling your employer how much to withhold from future paychecks.
- Complete and mail a SIMPLE IRA Application to us. Then tell your employer to send your contributions to:
Sit Mutual Funds
FBO SIMPLE IRA for (your name)
P.O. Box 534459
Pittsburgh, PA 15253-4459
SIMPLE IRA Benefits
- Your contributions reduce your taxable income.
- Your employer may match your contributions.
- You postpone paying taxes until you withdraw your funds.
- You may be able to take a tax credit for your contribution.
- Your tax rate in retirement might be lower than it is today.
- You won’t have to begin withdrawing your funds until you turn 70 1/2 or 72.
SIMPLE IRA Employee Contributions
- Contributions are deducted from your pay on a pre-tax basis.
- The 2023 contribution limit is the lesser of $15,500 ($19,000 if age 50 or over) or 100% of compensation.
- The 2024 contribution limit is the lesser of $16,000 ($19,500 if age 50 or over) or 100% of compensation.
SIMPLE IRA Employer Contributions
- Employers must contribute to your SIMPLE IRA in one of two ways:
1) By making a dollar-for-dollar match up to the first 3% of pay that an employee contributes.
EXAMPLE
Jerry works at DEF, earns $30,000 and contributes 3% of his pay ($900) to his SIMPLE IRA. DEF contributes $900 to his SIMPLE IRA.
OR
2) An employer contributes 2%, whether the employee contributes to the plan or not. The 2% contribution only applies to the employee’s first $290,000 of compensation in 2021 and $305,000 of compensation in 2022.
EXAMPLE
Larry works at GHI, earns $40,000 but does not contribute to his SIMPLE IRA. GHI contributes 2% of his pay ($800) to his SIMPLE IRA.
- Contributions are fully vested.
Sit SIMPLE IRA Custodial Fee
- The annual custodial fee is waived if your Sit SIMPLE IRA account balance is $10,000 or more.
- The annual custodial fee is $15 if your Sit SIMPLE IRA account balance is less than $10,000. We will notify you in November and you may pay the fee then or, if unpaid, we will deduct the fee in mid-December for your convenience.
- If your SIMPLE IRA account balance is less than $10,000 when you close your IRA, the $15 fee will be deducted from your check.
Tax Forms
- Employee salary deferral contributions are reported on IRS Form W-2 (“Wage and Tax Statement”), which your employer should provide to you in January.
- Redemptions are reported on IRS Form 1099-R (“Distributions from IRAs”), which is mailed to you in January.
Saver’s Credit
- While a tax deduction reduces the amount of your taxable income, a tax credit reduces the amount of tax owed.
- With the IRS Saver’s Credit, you may be able to take a tax credit of up to $1,000 ($2,000 if married filing jointly) for your SIMPLE IRA contribution.
- To claim the IRS Saver’s Credit, you must be 18 or older, not be a full-time student, not be claimed as a dependent on someone else’s tax return, and your income must not exceed the appropriate threshold referenced below.
| Tax Year | Single | Head of Household | Married Filing Jointly |
| 2023 | $36,500 | $54,750 | $73,000 |
| 2024 | $38,250 | $57,375 | $76,500 |
- For more information, see IRS Form 8880 (“Credit for Qualified Retirement Savings Contributions”), available at www.irs.gov.