Is October 1 the Deadline for Establishing Simple IRA?

Paul McEwan | September 27th, 2010

Small businesses have until October 1 to set up a Simple IRA for 2010. Failure to set up the plan by this date will mean that contributions cannot be made for 2010.  

Simple IRAs are for small businesses that have 100 or fewer employees. Business owners must match employee contributions up to 3 percent of pay or put in 2 percent of pay for all eligible employees. Employees can contribute up to $11,500 or, if they were born before 1961, up to $14,000.

The advantages to creating a Simple IRA include reduced reporting and disclosure requirements and lower administrative fees, as well as simplified record keeping and investing through IRA-based accounts. However, many of our clients take advantage of qualified 401(k) plan designs that incorporate higher contribution limits and allow for more flexibility in coverage compared to the Simple IRA.

The Simple IRA plan establishment process includes completing either Form 5304-SIMPLE or 5305-SIMPLE and providing employees with a 60-day notice which must begin prior to October 1. Employees can begin making contributions any time after receiving the notice, but no earlier than October 1.

Your accounting professional can explain the advantages and disadvantages of the available retirement plan designs and help you decide which plan is best for your company, as well as help you through the set-up process.  For those interested in setting up the Simple IRA plan themselves, the IRS provides compliance guidance on Simple IRA plans (including a short compliance checklist) at their website which can be found quickly by googling ”IRS Simple IRA Plan.”

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