Self-Directed Simple IRA Q&As

Self-Directed SIMPLE IRA Q&As

Want a retirement savings plan for employees? The SIMPLE IRA (Savings Incentive Match Plan for Employees) offers a straightforward and cost-effective choice. While a Self-Directed SIMPLE IRA shares similarities with the traditional approach to SIMPLE IRAs, the ability to self-direct your investments opens up a world of possibilities for employers and investors alike. Let’s explore the most basic questions about these types of accounts:

What is a Self-Directed SIMPLE IRA?

A Self-Directed SIMPLE IRA is a retirement savings plan designed for small businesses. It offers both employers and employees a tax-advantaged way to save for retirement. The “self-directed” aspect allows investors to choose where to put their contributions, offering more flexibility and the potential for higher returns compared to traditional savings accounts.

Who Qualifies for a Self-Directed SIMPLE IRA?

To qualify for this account, your company should meet specific criteria. This includes having less than 100 employees and the desire to establish a plan with low start-up and administration costs. That’s why a Self-Directed SIMPLE IRA can be an attractive option for small businesses looking to add a valuable retirement plan to their benefits package to attract quality employees.

How Does the Contribution Matching Work?

One of the significant benefits of a this account is the contribution matching feature. Employers are required to make contributions to their employees’ accounts, either by matching their employees’ contributions up to a certain percentage or making non-elective contributions on their behalf. The matching contributions can be a percentage of an employee’s salary, often up to 3% of their compensation.

Can Employees Self-Direct Their SIMPLE IRA Investments?

Yes, employees can self-direct their SIMPLE IRA investments if the plan allows for it. Unlike a traditional employer-sponsored plan, this account provides employees with the flexibility to choose how their contributions are invested. This means employees can explore a wide range of investment options, such as stocks, bonds, real estate, and precious metals. In the hands of employees, a Self-Directed SIMPLE IRA can mean a wide range of investment types within a retirement portfolio.

What Are the Tax Advantages of a Self-Directed SIMPLE IRA?

A Self-Directed SIMPLE IRA offers several tax advantages. Employee contributions are typically tax-deductible, meaning you can reduce your taxable income by the amount you contribute. The earnings on investments grow tax-deferred until withdrawal during retirement. At that point, the distributions are subject to income tax. Additionally, Self-Directed SIMPLE IRAs offer tax credits for small business owners to offset plan start-up costs.

What Are the Contribution Limits?

The IRS sets contribution limits for SIMPLE IRAs. For example, the IRS established that “the amount employee contributes from their salary to a SIMPLE IRA cannot exceed $15,500 in 2023.” You’ll want to consult with a tax planning professional or accountant to ensure that your company sets limits that stay within the boundaries of what’s acceptable with this type of plan.

Can a Self-Directed SIMPLE IRA Include Non-Traditional Assets?

Yes, a Self-Directed SIMPLE IRA can include non-traditional assets, such as real estate, private equity, precious metals, and more. The ability to self-direct your investments offers investors flexibility in investing that goes beyond traditional avenue of investing in stocks and bonds. And many employees enjoy this flexibility because it puts them in the driver’s seat for selecting what goes into their retirement.

A Self-Directed SIMPLE IRA can be a valuable retirement savings option for small business owners looking to provide a compelling benefits package for employees. Its tax advantages, contribution matching, and flexibility make it a compelling choice for small businesses. To explore Self-Directed SIMPLE IRAs or receive personalized assistance, feel free to contact American IRA at 866-7500-IRA.

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