SIMPLE IRA

Get detailed instructions on how to Establish Your Plan, or call us at 800-435-4000 if you have questions.

A SIMPLE IRA may be appropriate for businesses with 100 or fewer employees seeking a low-cost plan that's easy to administer and maintain.

If you are self-employed or own a business with 100 or fewer employees, you are eligible to establish a SIMPLE IRA plan, as long as it is the only retirement plan you fund. Companies maintaining another employer-sponsored retirement plan in the same year are not eligible. You must generally include all employees age 21 and over if they received at least $5,000 in compensation during any two prior years and if you reasonably expect that they will receive at least $5,000 in the current year.⁴

Employer contributions are tax-deductible. Earnings grow tax-deferred, and you pay no taxes on assets until you withdraw them in retirement.

The plan is funded with contributions deducted from employees' salaries, as well as annual employer contributions. Each eligible employee can decide whether or not to participate and how much to contribute, but employer contributions are mandatory.

Although, employers may decide to match only those employees who contribute or may provide a contribution to all eligible employees. Every year employers may switch between match OR contribute for all, if desired.

Employees can contribute up to 100% of compensation or a maximum of $16,000 for 2024 ($15,500 for 2023), for those age 50 and older $19,500 for 2024 ($19,000 for 2023).

What is different in 2024?

• Employers with 25 employees or fewer (who earned $5,000 or more in 2023) must allow an increased employee salary deferral limit of $17,600 (plus a $3,850 catch-up limit for those age 50 and older).
• While employers with 26 to 100 employees (who received at least $5,000 in compensation in 2023), may voluntarily allow the increased salary deferral limits above, the employer had to provide prior notice of the higher limits to all employees at least 60 days before the end of 2023. Larger employer contributions are also required if the higher limit was communicated in time.

New plans must be established by October 1 (if contributions will be made for that same year). Employer contributions must be made annually by the employer's tax-filing deadline, including extensions. Employee contributions are deducted from employees' salaries and must be deposited at least monthly.

• SIMPLE IRAs are easy to set up and maintain. IRS filing, tax reporting, and compliance testing are not required.
• Schwab reports all contributions and end-of-year fair market value on Form 5498 by May 31 each year.
• Full vesting is immediate

Withdrawals are penalty-free after age 59½. If you do not start Required Minimum Distributions (RMDs) by age 73, you may have to pay a penalty.

The new SECURE 2.0 reduces the 50% penalty for missing an RMD effective for RMDs in 2023, it does not impact missed RMDs in 2022.  Under SECURE 2.0 if you don't take your RMD by the IRS deadline, a 25% excise tax on insufficient or late RMD withdrawals applies. If the RMD is corrected timely, the penalty can be reduced down to 10%. Follow the IRS guidelines and consult your tax advisor.

Withdrawals before age 59½ are subject to a 10% penalty, and the penalty is increased to 25% if the withdrawal occurs within the first two years of participation in the SIMPLE IRA.

There are certain exceptions for which you can withdraw funds before age 59½ without taking a 10% (or 25%) penalty, including:

• Rollover of distributions to another IRA or employer plan
• Higher education expenses for you or family members, including tuition, fees, books, supplies, and room and board (must be enrolled at least half-time)
• First-time home purchase expenses ($10,000 lifetime limit) to buy, build, or rebuild a first home for you or your parents, children, or grandchildren (Note: You must not have owned a home within the past two years.)
• Death or disability
• Birth or adoption expenses
• Certain medical expenses, including qualifying health insurance costs for certain unemployed individuals and nonreimbursed expenses exceeding 7.5% of adjusted gross income
• Withdrawals made in equal installments over the account holder's life expectancy

SIMPLE IRAs offer an easy way for business owners to contribute to a retirement plan while offering one to employees as well. These plans are low cost, easy to administer and maintain with no need to file with the IRS.

You and your employees can contribute up to a maximum of 100% of compensation OR $16,000 for 2024 ($15,500 for 2023), whichever is less. If you or your employees are over age 50, salary deferral catch-up contributions increase the limit to $19,500 for 2024 ($19,000 for 2023), but still no more than 100% of compensation.

With the matching option, you match the employee contribution dollar for dollar up to 3%, not to exceed the salary deferral limit for that year. In any two out of five consecutive years, you may match a smaller percentage, not less than 1%. You only contribute to the retirement accounts for the eligible employees who make salary deferral contributions.

The nonelective contribution option requires that you contribute 2% of each eligible employee's compensation up to a maximum of $6900 for 2024 ($6600 for 2023). Employees do not have to make contributions themselves, to get the nonelective contribution.

To offer the SIMPLE IRA plan, as an employer, you must employ 100 people or fewer, each of whom earned at least $5,000 during the previous year. This includes all employees, regardless of whether or not they are eligible to participate in your SIMPLE IRA plan. Employees who earned $5,000 in ANY two (2) previous years working for the employer are eligible for the SIMPLE IRA.

Employees who are not eligible, or who can be excluded from the eligible category, include those who belong to organized unions and any nonresident alien employees who received no U.S. wages, salaries or other personal services compensation from you.

To make contributions for the current year, you must establish a new SIMPLE IRA plan between January 1 and October 1 of the tax year unless your business is established after October 1.

You may not maintain any other retirement plans such as SEP IRAs, profit-sharing or 401(k) plans. (Unionized employees are an exception to this rule.)

If the number of people you employ goes over 100, you can still maintain your SIMPLE IRA plan for two years after the first year the 100-employee limit is exceeded. After two years, if you still employ more than 100 people, you are no longer eligible to maintain a SIMPLE IRA plan.

Employees can open their account electronically by clicking Open a SIMPLE IRA. Or refer your employees (Participants) to the "Participants - Enroll in Your Company's Plan"

OR

Download, print, and distribute the following documents to each eligible employee.

*Note: Before distributing the Participant Notice and Summary Description to your eligible employees, complete the document in accordance with the elections you made on the Adoption Agreement.

Once you have established your Schwab SIMPLE IRA plan, opened your own SIMPLE IRA, and opened SIMPLE IRAs for eligible employees (as applicable), you may begin making contributions. To fund your plan, print and complete the Contribution Transmittal Form. Be sure your check total matches the total amount of participant contributions. Mail your check and the transmittal form to the nearest Schwab operations center listed below:

Charles Schwab & Co., Inc.
P.O. Box 628291
Orlando, FL 32862-8291

Charles Schwab & Co., Inc.
P.O. Box 982600
El Paso, TX 79998-2600

*Note: Schwab does not accept the 5305 or 5304 IRS Model Plan, or any other provider's Model Plan.