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Simple IRA Rules and Deadlines

| September 04, 2017
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The third quarter will soon come to a close, but there is still time to get a SIMPLE IRA plan established and funded before the year closes out. Let’s take a look at which employers are eligible to set up a SIMPLE IRA.

Rules for an employer to establish a SIMPLE IRA: 

  1. Employer must employ less than 100 employees who have earned at least $5,000 during the preceding year.
  2. Employer can maintain no other plans, SEPs, 401ks, 403bs, Profit Sharing Plans, Defined Benefit Plans or Pension Plans.


If you are a business owner and provide no other qualified plan and have fewer than 100 employees that earn at least $5,000 a year, then a SIMPLE plan might be perfect for you.

A new SIMPLE IRA plan has to be implemented between January 1st and October 1st of the year for which the plan is to be established. For example, if an employer wants a SIMPLE plan set up for year 2017, then the plan paperwork must be signed by October 1st. This requirement is put into place because of the 60-day rule which allows eligible participants time to review the plan notices and required documents.

A SIMPLE plan is a very easy plan to put in place that has a pre-fabricated adoption agreement with some flexibility. The main purpose is to allow employees access to a platform where they can defer a portion of their W2 wages into a tax-deferred plan. A SIMPLE plan has no income limitations like that of a traditional IRA and allows for the potential of more dollars to be put into the plan. Up to $12,500 can be deferred into a SIMPLE IRA for year 2017. Plus a catch-up contribution of an additional $3,000 if 50 or older by end of plan year.

Keep in mind that depending on how the plan is set up, the employer will have to contribute to eligible participant accounts.

Rules are as follows:

  1. Match each employee’s salary deferral contribution dollar-for-dollar up to 3% of employees compensation – or –
  2. Make non-elective contributions of 2% of employee eligible compensation. Even if an employee is eligible to participate and chooses not to a contribution must be made unless matching is chosen.


There are advantages and disadvantages to using SIMPLE IRAs. Most notable advantages are the cost of establishing and maintaining a SIMPLE IRA is far less significant than that of a 401k plan. However, a disadvantage of a SIMPLE IRA is the flexibility that can be offered with a 401k plan. If you are a small employer that wants to offer a salary reduction benefit to their employees for low cost, then a SIMPLE plan may be a perfect fit for you.

Cody Reading is a financial advisor at MSMF Wealth Management. He specializes in retirement planning strategies and believes that the best part of his job is helping clients reach their financial objectives. In his spare time, Cody enjoys hiking, cooking, traveling, spending time with his family, and attending Cardinals and Blues games.

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