When you browse the list of available retirement accounts, the Self-Directed SIMPLE IRA might not always come straight to the top. Popular names like Roth IRAs and 401(k)s tend to dominate discussions. But there are indeed alternative account types that can be powerful for small businesses, and the SIMPLE IRA is one of them. But how does this plan work, and what are the advantages of working with one? Let us explore how SIMPLE IRAS work, what they are, and how you might get started with one.
Defining the Self-Directed SIMPLE IRA
Before we explain how simple it is, it will help if we get our bearings first. The Self-Directed SIMPLE IRA is short for the Savings Incentive Match Plan for Employees. This is a plan generally for small businesses and the self-employed. In the SIMPLE IRA, there are three core benefits we like to highlight:
- Employees make contributions. A SIMPLE IRA is a good way for small businesses to begin a retirement plan for their employees, establishing an employer-matching program. In fact, it is required that the employer match in a SIMPLE IRA, dollar for dollar, up to 3% of the employee’s compensation. The employer may also offer no matching but contribute up to 2% of the salary in contributions. These contributions go directly to the IRAs held by each employee.
- Contributions are tax deferred. That makes this a “before-tax” plan, as contributions employees make are then excluded from their gross income, not to be taxed until withdrawn from the retirement account.
- Self-Direction is easy. Creating a Self-Directed SIMPLE IRA is easy, opening up the possibilities that come with self-direction. That includes investing in nontraditional retirement assets such as private companies, LLCs, precious metals, real estate, and more.
Although the “SIMPLE” in “SIMPLE IRA” does not stand for “simple,” but rather the savings incentive match plan you will be establishing, it is still a relatively straightforward way to create retirement incentives for your employees. That is particularly beneficial for small companies of under 100 employees. If you want your employees to save for retirement, you may consider using a SIMPLE IRA plan to incentivize exactly that.
Who is Eligible for a Self-Directed SIMPLE IRA?
Generally speaking, there will be some requirements for setting up a SIMPLE IRA that means these accounts aren’t available to just anyone. For example, you should be self-employed, or have a company that has up to 100 employees, for the SIMPLE IRA plan to make sense.
Why bother looking at this kind of IRA? There are a lot of advantages:
- SIMPLE IRAs are easy to set up and easy to begin administering. You can be set up with what feels like a sophisticated employee retirement program without giving it much thought except through low-cost administrative paperwork.
- Aside from the basic rules, you will get to decide how much money you contribute to employee retirement accounts, which means you will have the flexibility to make the SIMPLE IRA work within your company’s budget.
- Tax benefits. From the employee’s perspective, contributions to the SIMPLE IRA are highly incentivizing, because they are before-tax contributions. This means that the money will come out of their gross income for the year, only being taxed when the money is withdrawn from the account.
Odd as it sounds, the length of an acronym like SIMPLE can sometimes intimidate business owners. But you should take heart that setting up one of these plans for your company can indeed be simple, low-cost, and easy to handle. Interested in learning more about Self-Directed IRAs? Contact American IRA, LLC at 866-7500-IRA (472) for a free consultation. Download our free guides or visit us online at www.AmericanIRA.com.