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Is a SIMPLE Retirement Plan Right for My Employees?

Attention Plan Sponsors:


Is a SIMPLE Retirement Plan Right for My Employees?

Learn About the Benefits of a SIMPLE Retirement Plan Retirement Plan and Why It May Be the Right Option for Your Employee Benefits

There are many types of retirement savings plans. Truthfully, they all serve a valuable benefit and are key to attracting employees to work with your company. However, when it comes to small business options, some retirement savings plans are better than others.

One plan that may appeal to small business owners is a Savings Incentive Match Plan for employees (SIMPLE Retirement Plan). A SIMPLE Retirement Plan can be set up as an IRA or a 401(k) plan. The key is a SIMPLE Retirement Plan is easy to set up, easy to administer, and allows employers to take a tax deduction for contributions made into the plan. Therefore, a SIMPLE Retirement Plan is almost perfect for small businesses looking to offer retirement savings plans to their employees.

Who Qualifies for a SIMPLE Retirement Plan?

Small businesses with fewer than 100 employees may qualify to establish a SIMPLE Retirement Plan. An employee is defined as a person working for the company earning at least $5,000 or more for the previous tax year.

Eligible employees are considered eligible if they earned at least $5,000 in compensation during any two years before the current calendar year. In addition, they must expect to earn at least $5,000 during the current year. These eligible employees have the ability to make contributions to their SIMPLE Retirement Plan (usually an IRA) through pre-taxed contributions.

How Do Employees and Employers Contribute to SIMPLE Retirement Plans?

SIMPLE Retirement Plans are, well, simple. Employees have the right to contribute pre-taxed dollars to their retirement savings plan with every paycheck. Technically, an employee can contribute 100% of their salary to their SIMPLE Retirement Plan, as long as their contributions do not exceed $15,500 in 2023. (Each year, the maximum contribution amount may change). Employees over 50 years old can also make an additional catch-up payment of $3,500 (in 2023).

Employers are required to match their employees’ contributions up to 3% of the employees’ salary. They may also make a flat 2% contribution for each eligible employee, even if the employee does not contribute.

How Are SIMPLE Retirement Plans Distributed?

Like most IRA plans, employees can take money as a distribution at any time. However, if the employee is under 59.5 years old, they are subjected to a 10% federal income tax penalty, unless an exception is applied. These distributions are also subject to tax as ordinary income.

Once a participant reaches 72, they must begin minimum distributions

In addition, employees may wish to roll over their SIMPLE Retirement Plan if they leave the company or retire. However, SIMPLE Retirement Plans have a two-year waiting period after the date of enrollment. Any withdrawals taken during these first two years are subject to an additional 25% tax penalty.


SIMPLE Retirement Plans are often a wonderful option for small businesses. Employers and employees share the cost of funding the plan. In addition, the employers can take a tax deduction on all contributions made to the plan. The start-up and maintenance costs are often less than other retirement savings plan options, making the plan cost-effective for small employers.

To learn more about the benefits of a SIMPLE Retirement Plan for your business, call Retirement Plan Services Group at 609.922.0201. We will gladly work with you to help you determine if a SIMPLE Retirement Plan is right for your employees.




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