Nov. 21, 2020 4 mins read

How To Get Started With A SIMPLE IRA

How To Get Started With A SIMPLE IRA

A SIMPLE IRA is a workplace retirement savings plan that allows small businesses’ employees to make tax-deferred contributions. Business owners can provide retirement benefits to attract talent at a lower cost as well.

It lets eligible employees invest part of their pre-tax compensation into an individual account and receive dollar-for-dollar matching contributions up to 3 percent of each employee’s compensation. More details from the IRS, or our retirement calculator can help you calculate this.

SIMPLE IRAs (Savings Incentive Match Plan for Employees) have higher contribution limits than both traditional and Roth IRAs.

Employees and owners can contribute a maximum of $13,500 per year for 2020 and 2021. Retired savers who are 50+ years are allowed to make a catch-up contribution of $3,000, which brings their annual maximum to $16,500.

How to Set up a SIMPLE IRA

A SIMPLE IRA has fewer rules and is much less complicated to administer compared to a 401(k), 403(b) and 457 college plan.

This small-company version of a 401(k) plan can be used by small business owners, sole-proprietors and businesses with 100 or fewer employees.

Companies like podcast, photo and video agencies with more than 1 employee could use the SIMPLE IRA to provide low cost retirement benefits to their employees.

Steps to Establish a Plan

The deadline to set a SIMPLE IRA is between January 1st to October 1st, provided you did not previously maintain a SIMPLE IRA plan. Read our simple steps below, or follow IRS’s detailed instructions.

  1. Pick a financial institution to serve as trustee of the SIMPLE IRAs to hold each employees’ retirement plan assets.
  2. Decide on who will select the financial institution for their SIMPLE IRA, you or the employees.

    • If you want your employees to have the freedom to pick the financial institution where they will receive their contributions, use Form 5304-SIMPLE or
    • if you want to be the one to choose the financial institution where employees will hold their IRAs, use Form 5305-SIMPLE.
  3. Give eligible employees information about the SIMPLE IRA plan.

  4. Set up individual SIMPLE IRAs for each and every employee.

SIMPLE IRAs are fairly simple to apply for. Banks, investing companies, federally insured credit unions, savings and loan associations, insurance companies, mutual fund companies and brokerage firms are some of the institutions that offer SIMPLE IRA accounts. Each of them can walk you through their unique process, or you can email us and we can help.

There are no age restrictions. Employees must have netted at least $5,000 in any 2 calendar years and are reasonably expected to earn $5,000 in the current year to participate in the plan. If they wish, employers can pick less restrictive participation requirements.

Popular Financial Institutions to Consider

SIMPLE IRA is more uncommon amongst banking institutions. But if you’re already satisfied with the banking institution that you use, it’s worth checking if they offer one. This way you can keep everything under one roof. However, if you’re looking for a few other places to get started we’ve highlighted a few of the most popular below:

CompanyFeesInvestment OptionsUnique Features
Vanguard$5/year account service feeMutual funds, ESG funds, ETFs, stocks, CDsStreamlined account management
TD AmeritradeNo deposit minimums, trading minimums or hidden fees.ETFs, mutual funds, stocks, bondsOver 100 branches located countrywide
FidelityNo account fees and no minimum to open an accountMutual funds, stocks, ETFs, options, and sector investingExcellent customer care
Charles Schwab$0 account open or maintenance feesStocks, money market funds, mutual funds, index funds, ETFs, futures, optionsAutomated investing with professional guidance

Pros and Cons of a SIMPLE IRA

SIMPLE IRAs have minimal paperwork requirements and are easier to run.Participant loans are not allowed.
Small businesses can provide retirement benefits to their employees at a lower cost compared to the SEP-IRALower contribution limits than some other retirement plans
SIMPLE IRAs accept transfers from traditional IRAs, SEP-IRAs and employer-sponsored plans.A SIMPLE IRA can not be rolled over into a traditional IRA without a 2-year waiting period.
Matching employer contributions go to the employee and regardless of tenure, the contributions can go with them whenever they leave.There is a 10% penalty for early withdrawal on all SIMPLE IRA account withdrawals before the age of 59.5. This increases to 25% if you withdraw within the 2-year waiting period.
No discrimination testing is required.


A simple IRA is a convenient alternative for small gig economy businesses that do not want to deal with the bureaucratic and fiduciary complexities that come with a qualified plan.

Whether you are part of a small company that offers a SIMPLE IRA or a small business owner offering your employees an opportunity to save for their retirement future, a financial advisor can walk you through the process and help you create a plan that will put you on the path to financial security.

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