SIMPLE Plans This Fall?

Fall is in the air, and so a reminder about establishing SIMPLE plans, notifying employees, and making elections. SIMPLE plans are easy to set up, have a lower start-up and annual costs, and are simpler to operate in that there is no annual reporting. Employees decide how much to contribute, and the employer can choose one of two matching options.

General Information

  • Plan establishment deadline date: October 1;

  • Maximum number of employees: 100; and

  • Election Period: Nov 2- December 31 (at least 60 days prior to the beginning of plan year which begins January 1).

Eligible Employees

All employees who earned $5,000 or more during the preceding calendar year, and are expected to earn at least $5,000 in the next calendar year. You could choose no restrictions and include all.

Information for Employers

The following notices need to be made to employees annually.

  • Summary description of the plan: If there have been no changes to plan (eligibility requirements, employer match, etc.) you can use the plan description initially provided by the financial institution. Alternatively, you can use page 3 of Form 5304-SIMPLE or Form 5305-SIMPLE.

  • Annual election notice: The IRS requires businesses that offer Simple IRA plans to notify employees of their right to make or modify their SIMPLE plan contributions and which matching option will be in effect for that plan year. Again, the model forms include a Model Notification to Eligible Employees on page 3. For those businesses with no other retirement plan, the SIMPLE retirement plan can either be established with one financial institution to use for all employees or various financial institutions chosen by employees can be used. Form 5304-SIMPLE or Form 5305-SIMPLE is used, depending on the decision made.

  • 2 options for employer contributions: 2 percent non-elective match, which means 2% of the employee’s salary (up to a max salary) regardless of whether the employee contributes or not; orA dollar-for-dollar match (up to 3 percent of max salary), only if employee contributes.

  • Employers are free to choose which option to use each calendar year.

  • For 2018, maximum contribution will be $12,500, plus, if age 50 or over, you can contribute an additional $3,000 (therefore total of $15,500).

If you should have any questions about this plan, please contact me for assistance.

Susan A. Moussi, CPA, CFP®, CDFA SMD Tax & Divorce Financial Planning Consultants, Inc. Phone: 614.429.4172