SIMPLE IRA (Savings Incentive Match Plan for Employees)

Question 1

What does SIMPLE IRA stand for?

Answer 1

Savings Incentive Match Plan for Employees Individual Retirement Account.

Question 2

2️⃣ Who can establish a SIMPLE IRA?

Answer 2

➡️ Small businesses with 100 or fewer employees that do not have another retirement plan.

Question 3

3️⃣ Who can contribute to a SIMPLE IRA?

Answer 3

➡️ Both employees and employers can contribute.

Question 4

4️⃣ Are employers required to contribute to a SIMPLE IRA?

Answer 4

➡️ Yes, employers must either match employee contributions (up to 3%) or contribute 2% of each eligible employee’s salary.

Question 5

5️⃣ What is the maximum employee contribution for a SIMPLE IRA in 2024?

Answer 5

➡️ $16,000 per year.

Question 6

6️⃣ Is there a catch-up contribution for employees over 50?

Answer 6

➡️ Yes, employees aged 50+ can contribute an additional $3,500 in 2024.

Question 7

7️⃣ Can an employee contribute to both a SIMPLE IRA and a Traditional or Roth IRA?

Answer 7

➡️ Yes, but total contributions across all IRAs must follow IRS limits.

Question 8

8️⃣ How often must employer contributions be made?

Answer 8

➡️ Employer contributions must be deposited by the employer’s tax filing deadline, including extensions.

Question 9

9️⃣ Are SIMPLE IRA contributions tax-deductible?

Answer 9

➡️ Yes, employee contributions are made pre-tax, reducing taxable income, and employer contributions are deductible as a business expense.

Question 10

🔟 When can funds be withdrawn from a SIMPLE IRA without penalty?

Answer 10

➡️ After age 59½.

Question 11

1️⃣1️⃣ What is the early withdrawal penalty if money is taken out within the first two years of participation?

Answer 11

➡️ A 25% penalty (instead of the standard 10% for other retirement plans).

Question 12

1️⃣2️⃣ Do SIMPLE IRAs have required minimum distributions (RMDs)?

Answer 12

➡️ Yes, RMDs must begin at age 73 (as of 2024).

Question 13

1️⃣3️⃣ Do employers have to file annual IRS reports for a SIMPLE IRA?

Answer 13

➡️ No, unlike a 401(k), SIMPLE IRAs do not require IRS Form 5500 filings.

Question 14

1️⃣4️⃣ Can an employer offer both a SIMPLE IRA and a 401(k)?

Answer 14

➡️ No, a business cannot offer a SIMPLE IRA if it already has another retirement plan.

Question 15

1️⃣5️⃣ What is one key advantage of a SIMPLE IRA compared to a traditional 401(k)?

Answer 15

➡️ Easier and cheaper to administer, with fewer reporting requirements and lower costs.