Small Businesses Still Have Time to Establish a SIMPLE IRA

August 17, 2017 10:04 AM
By Brian Dobbis

Remember that this popular retirement-savings plan features low cost, flexibility, and minimal administrative requirements.


For many small-business owners, the waning summer season is a reminder that the leisurely days soon will be replaced with the more eventful schedule of fall, including preparing for the deadline of October 1 to establish a SIMPLE IRA plan for 2017. 

The SIMPLE IRA was created in 1997 to replace the SAR SEP, and now it has become a popular retirement-savings plan for small-business owners and sole proprietors alike, due to its low cost, flexibility, and minimal administrative requirements. This makes the SIMPLE IRA well worth considering when discussing retirement plan options with your clients.

Government rules mandate that a new SIMPLE IRA plan must be established between January 1 and October 1 of the year in which the plan is being established.  Plans established after October 1 would not be effective until January 1, 2018, at the earliest. An exception applies for a newly established business. If you’re a new employer that started business after October 1, you can establish the SIMPLE IRA plan as soon as administratively feasible after your business came into existence.

Tip: You may maintain a SIMPLE IRA plan only on a calendar-year basis.

Establishing a SIMPLE is relatively straightforward and, yes, simple, if you follow these steps: 

1. First the business owner must adopt a SIMPLE plan document using either IRS Form 5304-SIMPLE or 5305-SIMPLE.

2. Next, furnish certain notices to eligible employees regarding the plan. November 1 is the deadline for employers who will continue to offer a SIMPLE plan for 2018, to send each eligible employee a notice. The notice provides employees a wealth of information, including the opportunity to participate in the plan by making salary deferrals, or to change the amount previously being deferred. In addition, the notice informs the employee of the employer contribution formula (e.g., a match or 2% non-elective contribution).

Tip: Once the employer has chosen the contribution formula, it cannot be modified till the following plan year.

3. Last, enroll eligible employees. Each eligible participating employee is required to set up his or her own SIMPLE IRA account. Employee, employer, and rollover contributions will be deposited here.  As of late 2015, SIMPLE IRA rollover rules have been expanded. (See here for more information.)  

Click here to begin setting up a Lord Abbett SIMPLE IRA.  

Additional rules state that an employer cannot establish a SIMPLE IRA in the same calendar year (“one-plan requirement” in which an employee/participant receives a contribution to a 401(k) or similar plan (e.g. 403(b), SEP, profit sharing. etc.). In other words, plan sponsors generally cannot establish a SIMPLE plan if they maintain a 401(k) or other qualified plan in the same year in which contributions are made. However, there is an exception: if another qualified plan is maintained for union employees covered by collective bargaining agreements, the plan sponsor may maintain a SIMPLE IRA for the other non-union employees.

You are signed in as:null

Lord Abbett welcomes your feedback on this blog. Comments will be moderated and will be published at the discretion of Lord Abbett. Please do not include personal, financial or account information or endorsement of Lord Abbett or any of its products or services in your comment. Click here to read the full text of Lord Abbett’s social media policy.

Your email will not be published. Required Fields are marked.*

No comments yet