SIMPLE IRA

SELF-DIRECTED SIMPLE IRA

A Savings Incentive Match Plan for Employees (SIMPLE IRA) is a salary reduction plan for small businesses and/or the self-employed. As long as your business does not sponsor another retirement plan, you can offer this account to your employees and even take advantage of the benefits yourself. The startup cost and administrative fees are less than a 401(k), and this plan is a great strategy to lower your business’s tax liability. Employees elect to defer a percentage of compensation, pre-tax, each pay period. The employer contributes the salary deferral and the employer’s matching amount to the employee’s account.

If you want control over your retirement funds and investing decisions, a self-directed SIMPLE IRA is a great savings plan. You choose your own assets from a class of alternative investments outside the Wall Street norm to diversify your retirement portfolio.

Features

  • Small businesses (100 or fewer employees) can offer retirement benefits to attract employees
  • Employer match: elective contribution (typically 3% of the employee’s salary) OR a non-elective contribution (2% of the employee’s salary)
  • Contributions and earnings are not taxed until withdrawn
  • The employer may not have to make contributions for employees who don’t participate
  • A self-directed SIMPLE IRA can invest rentals, rehab-and-flips, futures and forex trading, cryptocurrency, and more

NOTE: You cannot transfer funds to any other retirement plan (IRA, SEP, or Roth) within the first two years of opening a SIMPLE account. But, you ARE able to move funds from a typical SIMPLE plan into a self-directed SIMPLE IRA any time.

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Distributions

Distributions are included in your annual income and subject to income tax. If you are under the age of 59 ½, there is a 10 percent early withdrawal penalty in addition to the income tax that may be due.

There are a few exceptions to the 10-percent penalty including if you inherited the IRA, if you are paying qualified education expenses for yourself or dependents, and if you are a first-time home buyer (up to $10,000). Consult with a financial professional for more information.

Contribution Limits of a Self-Directed SIMPLE IRA

SIMPLE IRA 2018 2019
Employee Salary Deferral $12,500 $13,000
Salary Deferral Catch-Up (age 50 and older) $3,000 $3,000
Employer Matching Contribution Between 1-3% of employee’s deferral Between 1-3% of employee’s deferral
Employer Non-Elective Contribution 2% of employee’s compensation 2% of employee’s compensation