When you hear about Self-Directed SIMPLE IRAs, it’s possible that not everyone is getting the facts right. After all, many people talk about SIMPLE IRAs without using one themselves. When you throw in the idea of Self-Direction, there can be even more misconceptions. But what are SIMPLE IRAs really about, and what should investors know about them? To tackle that, let’s take a look at what many investors get wrong about these accounts.
Self-Directed SIMPLE IRAs: The Basics You Need to Know
To help clear the air on a number of misconceptions, our first mission is to get rock-solid on what a SIMPLE IRA even is. Short for a Savings Incentive Match Plan for Employees, the SIMPLE IRA is a way for owners of small businesses to create a retirement plan. This is a tax-favored retirement plan that eligible small employers (and that includes the self-employed) can create for the benefit of their entire employee roster. In essence, it’s a way for small businesses to create a retirement benefit.
In a Self-Directed SIMPLE IRA, employees can make contributions from their paycheck, up to the allowable limit. Employers then match the contributions, dollar for dollar, up to 3% of the employee’s compensation. Without matching, employers can contribute up to 2% of that salary. This means that even if employees do not opt to take you up on matching, you can still create a retirement savings plan for them that will benefit them as they work for you.
The idea is simple, just like the name: you want to attract the best workers. To do so, you sometimes have to compete with larger companies who have large retirement benefits. The SIMPLE IRA essentially creates a way for small businesses to offer a beneficial retirements package to new employees, helping them to attract and retain talent.
What Investors Get Wrong about Self-Directed SIMPLE IRAs
If the SIMPLE IRA is so simple, then why do not more investors get it right? We do not have the answer to that. But there are some issues that you will want to keep in mind if you ever hear any misinformation about SIMPLE IRAs:
- SIMPLE IRAs can work for the self-employed. If you are self-employed, it’s possible for you to use the SIMPLE IRA as long as you make sure that you adhere to the rules. Many people think that SIMPLE IRAs can only work for huge businesses, but the Self-Directed SIMPLE IRA is for businesses with 100 or fewer employees.
- Self-Direction opens up all sorts of avenues. Many people fear self-direction is some sort of “off-the-grid” investment maneuver. It’s not in the least. What it means is that you will be free to choose the investments you keep within your retirement account. This is a powerful way of thinking about this, because it means that you can cut right through the misinformation and understand how it is possible to take control over your own financial destiny.
The key to making a SIMPLE IRA work? Make sure that you work with a reputable Self-Directed IRA administration firm to ensure that everything is taken care of. This way you can establish a Self-Directed SIMPLE IRA with the confidence you need to take care of your employees—and yourself. With a Self-Directed SIMPLE IRA, there are all sorts of possibilities. But nothing happens until you take the first steps and learn about them.