Self-Directed IRAs for Business Owners – The Self-Directed SIMPLE IRA

Many business owners want to combine the tax advantages and flexibility of Self-Directed IRA investing with the higher contribution limits available in employer-sponsored plans. The Self-Directed SIMPLE IRA is a common and popular variant of the IRA designed for small businesses with 100 or fewer employees who do not want to go through the trouble of setting up and administering a full-fledged ERISA-qualified 401(K) plan.

Self-Directed SIMPLE IRAs allow contributions from both employees and employers. Employees can contribute up to $13,000 for 2019, or up to 100 percent of compensation. Those ages 50 and older can contribute an additional $3,000 per year.

Self-Directed SIMPLE IRAs do involve some commitment on the part of plan sponsors: The company must make contributions each year, which can be either a match of up to 3 percent of compensation or a non-elective contribution of at least 2 percent of each employees’ compensation.

Compared to a qualified plan like a 401(K), SIMPLE IRAs and Self-Directed SIMPLE IRA plans allow employees more flexibility in when they can take distributions. While 401(K) plans only allow for distributions upon reaching age 59½, death, disability and termination of service to the company, SIMPLE IRAs are eligible for distributions at any time.

However, distributions are taxable and subject to a penalty of at least 10 percent prior to age 59½. Distributions within the first two years of participation are subject to a draconian penalty of 25 percent, so participants should be very confident they will not need to access that money for at least two years.

However, unlike 401(K)s, SIMPLE IRAs, including Self-Directed SIMPLE IRAs, are eligible for ‘hardship’ exemptions to the 10 percent penalty.

Self-Directed SIMPLE IRA Employer Compliance

Plan sponsors must comply with deposit rules. Salary deferral (employee) contributions must be made within 30 days of the end of the month in which the salary would have been paid out had it been paid in cash. However, self-employed individuals have more flexibility in the timing of the contributions: They have until 30 days after the end of the plan year – normally until January 30th for those businesses using a calendar year. Employer contributions must be made by the due date for the business’s tax return including extensions.

Setting up a SIMPLE IRA for Self-Direction

With a Self-Directed SIMPLE IRA account, participants are not limited to mutual funds, stocks, bonds, and other paper investment. They can hold all manner of alternative investments, and hold assets like rental property, gold and precious metals, closely-held C-corporations and limited partnerships, farms and ranches, tax liens and certificates and others.

However, you need a custodian or third-party administrator that is set up to hold these types of assets and record these transactions. That’s where American IRA, LLC comes in. As an administrator that focuses on self-directed investing, American IRA can work with you no matter what types of assets you select. As long as the assets are legal to hold within an IRA, American IRA can support the transaction.

Interested in learning more about the advantages of Self-Directed SIMPLE IRAs, Self-Directed SEP IRAs and 401(K)s for small business owners and self-employed individuals? Download our free guides or visit us online at

Your Self-Directed Simple IRA

First of all, the description term “Self-Directed Simple IRA” is not intended to imply that you would choose this program because it is easier to establish and/or to administer. This is to describe another form of an employer-based IRA from which participants who qualify can invest their retirement funds on their own.

This option is considered to be ideal for companies with fewer than 100 employees, including any part-timers.

To get started, there are now three ways to provide the initial funds. You can use one, two, or all of these methods. The account holder may make a contribution, an employer can make a contribution, and/or the account holder is allowed to transfer funds from another Self-Directed Simple IRA (whether the other Simple IRA is Self-Directed or not).

Moving forward, an employer can choose to match up to 3% of each employee’s compensation OR to contribute 2% for each employee.

There is a degree of strategy with regard to an employer’s choice.

Choosing the 2% for each employee, whether an employee contributes to their own account or not, enables the business ownership to determine the exact amount of the contribution based on the compensation structure.

On the other hand, matching up to 3% would most likely increase the amount of the contributions, especially if most or all of the employees choose to contribute at least 3% of their compensation to their accounts. Since employer contributions to a Self-Directed Simple IRA are deductible as a business expense, an employer choosing this option would likely face a greater tax advantage by doing so.

You should consult with your tax professional prior to making this decision. However, funds in the account of an employer, as well as all participating employees, offer the same tax benefits as a Traditional IRA does.

A business owner (employer) gains several advantages by offering a Self-Directed Simple IRA. The start-up and ongoing administrative and managing costs are generally lower than for offering a Traditional 401K plan. In addition, the contributions can be implemented as an additional payroll deduction, which saves administration of separate checks and bookkeeping chores.

At the same time, this provides an employee benefit and incentive for staying with the business, while potentially reducing business taxes.

Each participating employee under this plan also gains advantages. He or she is able to choose the amount (percentage) to contribute to their plan on a regular basis. Having the employer match or contribute to their plan adds to their contribution each year and helps their funds grow for the long term.

While in operation, the business owner has the ability to use its funds to invest in real estate, precious metals, notes, technology, or any other appropriate investing. Such investments can be on a short or long-term basis, or as a mixture.

For example, a business owner could purchase and flip two properties each year, with the profits feeding into the Self-Directed Simple IRA each time tax-free. Or, he/she could purchase a rental property and have the monthly positive cash flow feed into the account every month for years to come.

Each participating employee can also make investments in the same categories as they wish, and with the added benefit of the employer matching or contributing to their funds as scheduled.

Participating employees have one other potential benefit. Upon a Self-Directed Simple IRA being in existence for two years, the account holder becomes eligible to rollover the funds into another retirement account.

Suppose “Jenny” works for XYZ Corporation, which is matching 3% of her contribution, for five years. She was able to invest and increase her funds as well.

She decides to leave XYZ Corporation for another position. Because she held her account for more than the required two years, she would be able to immediately transfer all of her funds from this Self-Directed Simple IRA into another Self-Directed (or Traditional) IRA of her choosing, perhaps merging it with other funds for an even larger impact.

This is another way that this program fits into your long-term retirement strategy!

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