Know Your Small Business Retirement Plan Options: What is a SIMPLE IRA? | Millennium Trust Company

Know Your Small Business Retirement Plan Options: What is a SIMPLE IRA?

March 10, 2020
By Millennium Trust

What is a SIMPLE IRA?  A SIMPLE IRA is a Savings Incentive Match Plan for Employees IRA. This type of retirement savings option is one choice for small businesses when a 401(k) plan isn’t the right fit.

Let’s break it down in simple terms.

TARGET DEMOGRAPHIC: Small businesses with 100 or fewer employees

EMPLOYER CONTRIBUTIONS: Employers are required to contribute to a SIMPLE IRA. SIMPLE IRAs feature two different options for employer contributions:

  1. Matching contribution of up to 3% of compensation, or

  2. A non-elective, 2% contribution for each eligible employee

Learn more about SIMPLE IRA employer contributions.

EMPLOYEE CONTRIBUTIONS: Employees may elect to contribute. Employee contributions are limited to $13,500 in 2020 ($13,000 in 2019).

EMPLOYER FILING REQUIREMENTS: There are generally no employer filing requirements with a SIMPLE IRA.

VESTING: Employees are immediately 100% vested in all of the money in their SIMPLE IRA.

SIMPLE IRA PROS: A great fit for businesses with 100 or fewer employees, a SIMPLE IRA program gives employees a 401(k)-like saving experience, while saving the employer the considerable cost and operating requirements of a traditional plan. Pros include:

  1. Typically less expensive than a 401(k) and other retirement plans

  2. Easier to set up and operate and have less administrative burden than a 401(k)

  3. No annual discrimination testing required


  1. Lower contribution limits than a 401(k) and some other retirement plans

  2. Less flexibility in contributions than some other plans

Is a SIMPLE IRA right for your business and employees? Try our Retirement Savings Selector Tool for Small Businesses to find out which retirement plan type could be right for you.

Try our Selector Tool

The material in this blog is presented for informational purposes only. Millennium Trust Company performs the duties of a directed custodian, and as such does not sell investments or provide investment, legal or tax advice.

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