Advanced Underwriting Consultants

Question of the Day – June 12

Ask the Experts!

The professionals at Advanced Underwriting Consultants (AUC) answer the tax questions posed by producers.  Here’s the question of the day.

Question: What is a SIMPLE plan and how can an employer implement one?

Answer: A savings incentive match plan for employees (SIMPLE) is a kind of qualified plan usually designed to have an employer and employee both contribute to the employee’s retirement.  Under the most basic SIMPLE arrangement, an employer creates special SIMPLE IRAs for eligible employees, and both make the kinds of contributions described below.

A SIMPLE plan is similar to a Section 401(K) plan in the way that it works.  In fact, a SIMPLE plan can be a part of a 401(K) plan; a variant known as a SIMPLE 401(K) plan.

Only those employers with 100 or fewer eligible employees may set up and maintain a SIMPLE IRA plan.

For most employers, implementing a SIMPLE IRA plan is a three-step process:

  1. Fill out and sign either IRS Form 5304-SIMPLE (if the participants have control over where their SIMPLE IRAs are established) or Form 5305-SIMPLE (if the employer controls where the SIMPLE IRAs are established).
  2. Give each employee a copy of the completed page 3 of Form 5304 or 5305
  3. Make sure each eligible employee has a SIMPLE IRA set up to accept SIMPLE contributions

As with a SEP IRA plan, it is possible for an employer to create a customized SIMPLE IRA document.  However, most use the standard IRS forms.

A SIMPLE IRA may usually only be created for a particular tax year between January 1 and October 1 for the given year.

Have a question for the professionals at AUC?  Feel welcome to submit it by email.  We may post your question and the answer as the question of the day.