Simple IRA

What is a Simple IRA?

A Simple IRA (Savings Incentive Match Plan for Employees Individual Retirement Account) is a type of retirement plan that’s designed especially for small businesses and their employees. It’s easy to set up and maintain, making it an attractive option for those who want to offer retirement benefits without the heavy administrative load that comes with more complex plans. Whether you own a small business or are self-employed, a Simple IRA could be the perfect choice for securing your financial future.

Pros:

• Easy Setup: One of the biggest advantages of a Simple IRA is how easy it is to establish. You can set it up on your own through a financial institution without complex paperwork.

• Tax Advantages: Contributions to a Simple IRA are tax-deductible, and earnings grow tax-deferred until withdrawals are made during retirement.

• Employee Participation: Employees can contribute up to $15,500 (as of 2023) per year, with an additional catch-up contribution if they're 50 or older. This can encourage participation and bolster retirement savings.

Cons:

• Mandatory Contributions: Employers are required to either match employee contributions dollar-for-dollar up to 3% or provide a 2% non-elective contribution to all eligible employees, regardless of whether they contribute or not.

• Limited Contributions: While the contribution limits are fairly generous, they may still be lower than other retirement plans for higher-income individuals.

• Withdrawal Penalties: Withdrawals made before age 59½ can incur a 10% penalty, which increases to 25% if withdrawn within the first two years of the plan.