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A retirement plan solution for small businesses: A simple IRA
by James E. Elvord and RBC Wealth Management
2013-07-03

This article shared 2420 times since Wed Jul 3, 2013
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Are you a small business owner that has been contemplating establishing a retirement plan? Are you concerned about the administrative costs and headaches associated with running a 401(k)? If so, a Savings Incentive Match Plan for Employees (SIMPLE) IRA may be a plan to fit your needs.

A SIMPLE IRA is an IRA-based plan that gives small employers a simplified method to make contributions toward their employees' and their own retirement. Under a SIMPLE IRA plan, employees may choose to make salary-reduction contributions and the employer makes matching or non-elective contributions. All contributions are made directly to an Individual Retirement Account or Individual Retirement Annuity (IRA) set up for each employee. SIMPLE IRA plans are maintained on a calendar-year basis.

SIMPLE IRA plans may be established only by employers that had no more than 100 employees who earned $5,000 or more in compensation during the preceding calendar year (the "100-employee limitation"). For purposes of the 100-employee limitation, all employees employed at any time during the calendar year are taken into account, regardless of whether they are eligible to participate in the SIMPLE IRA plan.

Among the advantages of this plan is that it enables employees to make their own decisions on how much they wish to contribute and what funds they decide to place their contributions. That latter factor means that employers' liability for investment results is limited. Also, SIMPLE plans are easy to administer, with no complicated reporting requirements.

A SIMPLE IRA is a valuable addition to an employee benefit package. They give each employee the freedom to choose how much they wish to contribute to a retirement plan, up to $12,000 per year (or up to $14,500 for employees 50 or over) in 2013. All contributions are immediately vested and employees can access this money at any time, subject to the premature distribution penalty rules for SIMPLE IRAs.

Assets in a SIMPLE IRA can be invested in virtually any type of investment, including mutual funds, common stocks, corporate and government bonds, annuities and more.

There are two sources of contributions to a SIMPLE IRA—salary deferrals and employer contributions. Employees (including the owners) can defer up to $12,000 or 100 percent of wages (whichever is less). Employees who are age 50 or older can defer an additional $2,500 as part of the catch-up provision. Employers must match deferrals dollar for dollar up to 3 percent of compensation (this amount can be lowered to 1 percent in 2 out of 5 years) or employers must make a 2 percent non-elective contribution for all eligible employees.

The deadline for establishing a SIMPLE IRA is October 1 to allow for current-year contributions. Exception: If a new company comes into existence after October 1 of the year that the SIMPLE IRA plan is set up, then the deadline is as soon as administratively feasible but no later than December 31.

If you are a small business owner, there are some great opportunities to establish a retirement plan for your business. You save taxes while saving for your future. In addition, the availability of a competitive retirement plan is a key component considered as individuals seek employment.

There are a variety of retirement plan styles to choose from when establishing a plan for your business, each with their own set of benefits, administration requirements and costs. Selecting the right one is an important task, so it is important to do your home work. Talk with your investment and tax advisor about designing a retirement plan that best fits your needs and the needs of your employees.

This article is provided by James E. Elvord, AWM, a Financial Advisor at RBC Wealth Management in Chicago, and was prepared by or in cooperation with RBC Wealth Management. The information included in this article is not intended to be used as the primary basis for making investment decisions nor should it be construed as a recommendation to buy or sell any specific security. RBC Wealth Management does not endorse this organization or publication. Consult your investment professional for additional information and guidance. RBC Wealth Management does not provide tax or legal advice.

RBC Wealth Management, a division of RBC Capital Markets LLC, Member NYSE/FINRA/SIPC

James E. Elvord, AWM, Financial Advisor, RBC Wealth Mgmt., 312-559-1738 or 800-683-3246, james.elvord@rbc.com .


This article shared 2420 times since Wed Jul 3, 2013
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