The SIMPLE IRA is a popular retirement plan for owners of small businesses with fewer than 100 employees. It’s a common defined contribution retirement plan and it’s usually offered as a simpler, lower cost alternative to a company 401(k) plan. The two defined contribution plans have a lot in common, but the SIMPLE IRA is much easier to maintain and typically comes with lower fees and setup costs.
Like the 401(k), the SIMPLE IRA allows for both employee and employer contributions. Under current law, every employee participant can contribute up to $12,500 per year. Those ages 50 and older can contribute another $3,000 per year for a maximum of $15,500 as of 2017.
On the employer side, the plan sponsor must generally match the employee contribution up to a maximum of 3 percent of salary.
Self-Directed Simple IRAs
Like the other plans we support here at American IRA, LLC, the SIMPLE IRA supports self-directed investing, provided you set up the plan with a vendor like American IRA, LLC that specifically works with investors and business owners who want to explore self-directed investing.
Self-directed investing refers to the increasingly popular practice of sidestepping the Wall Street brokers and insurance agents that often sell these programs to investors. Not every financial services company allows you to practice self-directed investing in their plans. Most of the large investment companies you’ve heard of don’t allow for direct investment in real estate, gold & precious metals, land, private lending, private equity and private debt placement, venture capital or other alternative asset classes. They are designed for paper investments like stocks, bonds, CDs, money markets and mutual funds.
These alternative asset classes may help you achieve greater diversity or pursue greater possible returns or less overall risk than you might get with conventional asset classes alone.
SIMPLE IRA Taxes
SIMPLE IRAs are taxed like regular IRAs. Contributions are pre-tax, while distributions are taxed as ordinary income. Distributions prior to age 59½ are subject to a 10 percent penalty. But this is important: The penalty for withdrawal within the first two years is 25 percent. This is much higher than the usual early withdrawal penalty for other types of retirement accounts.
Those with SIMPLE IRA balances must begin making required minimum distributions by April 1st of the year following the year in which they turn age 70½.
Small businesses may be eligible for a tax break worth up to $1,500 to offset any setup or administrative costs over the first three years.
Eligibility for Self-Directed Simple IRAs
Any small business can create a SIMPLE IRA for its own employees provided they have a maximum of 100 employees, and provided they have no other retirement plan already in place, with the exception of plans offered under collective bargaining agreements to union members.
The SIMPLE IRA may be a compelling alternative to the Solo 401(k) if you expect to hire any employees or you already have employees other than yourself and a spouse. It’s also a potentially good match for any qualifying small business whose employees want or need a retirement plan with a company match.
It’s not a good fit if you plan to have more than 100 employees in the near future, or if you want a plan with a Roth option.
There are other possible plans that may be a better match for you, depending on your circumstances. Other possibilities include a solo 401(k), a conventional 401(k), a Roth 401(k), a SEP (simplified employee pension), or an IRA or Roth IRA. Each of these accounts support self-directed retirement investing, provided you set your account up with a vendor that also supports self-directed investing, such as American IRA, LLC.
About American IRA, LLC
American IRA, LLC is located in Asheville and Charlotte, North Carolina. We are among the country’s leading experts in self-directed retirement investing and helping business owners and individual investors execute their self-directed and alternative asset class retirement plan strategies.
For more information about Self-Directed Simple IRAs and how they may benefit your business, call us today at 866-7500-IRA(472), or visit us online at www.americanira.com. We look forward to serving you.