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A SIMPLE (Savings Incentive Match Plan for Employees) IRA provides small businesses with 100 or fewer employees, the ability to offer retirement plans. Both the employer and employees can make contributions to this type of retirement account, and employees are completely vested in all funds within their SIMPLE IRA. An advantage of SIMPLE IRAs is they are not subject to the restrictions and guidelines of the Employee Retirement Income Security Act (ERISA).
As per the Internal Revenue Sevice (IRS) regulations, total contributions are limited for this type of retirement vehicle. In fact, a disadvantage of SIMPLE IRAs is their lower contribution limits compared to other available retirement accounts (for 2024, the limit is $16,000). Total contributions include salary reduction contributions, and employer contributions which can be either nonelective contributions or matching contributions.
In addition, the IRS has placed stringent restrictions on a SIMPLE IRA rollover compared to other retirement vehicles. There is a two-year waiting period after initial participation in the plan commenced.
SIMPLE IRA Rollover Rules & Limitations
The IRS rules for a SIMPLE IRA rollover state that the participant must wait for a two-year period before rolling over funds. Failing to do so will result in a 25% tax levied on the funds. However, funds can be transferred from one SIMPLE IRA into another SIMPLE IRA without incurring any penalties.
Once the two-year period has pasted, essentially there are two ways to move money tax-free from your SIMPLE IRA into another retirement account: either a rollover, or a custodian-to-custodian transfer. If you elect to take distributions prior to turning 59 ½ years old unless you meet the criteria for an exception, funds will be subject to a 10% penalty. Additionally, the IRS does not permit funds from a SIMPLE IRA to be rolled over into a “designated Roth account” (401(k), 403(b), or 457(b)).
The easiest method of moving funds from a SIMPLE IRA into a self-directed IRA like a Precious Metals IRA is via a custodian-to-custodian transfer. Simply open a self-directed IRA with a reputable, IRS-approved IRA custodian. This custodian then directly transfers the funds from the existing SIMPLE IRA into the new IRA. Thereafter, said custodian will invest the funds as per instructions that you have provided. With a custodian-to-custodian transfer, you never touch the funds and the money transferred is not subject to any tax penalties.
SIMPLE IRA vs. Other Retirement Accounts
The table below compares the various types of retirement plans:
| Plan Type | Sponsorship | Roth Option? | Allows Precious Metals Stocks? | Allows Precious Metals Bullion? | Allows Other Alternative Investments |
|---|---|---|---|---|---|
| Precious Metals IRA | Individual | Yes | Yes | Yes | Yes |
| Traditional IRA | Individual | Yes | Yes | No | No |
| 401(k) | Employer | Yes | Maybe | No | No |
| SEP IRA | Self-employed or Business owner | Yes | Yes | Maybe | Maybe |
| Solo 401(k) | Self-employed | Yes | Yes | Yes | Maybe |
| Simple IRA | Employer | Yes | Yes | Maybe | Maybe |
| Money Purchase Plan | Employer | No | Maybe | No | No |
| Profit Sharing Plan | Employer | No | Maybe | No | No |
| 457(b) | Government or Non-governmental Tax-exempt Employer | Yes | Maybe | No | No |
| SARSEP | Employer | No | Yes | Maybe | Maybe |
| Keogh Plan | Self-Employed or Unincorporated Employer | No | Maybe | No | No |
| Thrift Savings Plan (TSP) | Government or Armed Services Employer | Yes | No | No | No |
| ESOP | Employer | Yes | Maybe | No | No |
| Annuity | Individual | No | Maybe | No | No |
SIMPLE IRA Contribution Limits
The Internal Revenue Agency (IRS) has specific contribution limits for a SIMPLE IRA. The contributions include salary reduction contributions, and employer contributions which can be either nonelective contributions or matching contributions.
For 2024, salary reduction contributions cannot exceed $19,500. Additionally, the IRS stimulates per its SIMPLE IRA guidelines:
“If an employee participates in any other employer plan during the year and has elective salary reductions under those plans, the total amount of the salary reduction contributions that an employee can make to all the plans he or she participates in is limited to $23,000 in 2024.”
If catch-up contributions are allowed with the specific SIMPLE IRA plan and you are 50 or over, then the catch-up contribution limit is $3,500.
Employer contributions are usually up to 3% of the employee’s salary. Conversely, the employer may decide to make nonelective contributions of 2% of each employees’ respective income.
As per IRS regulations, it is important to note that other than the aforementioned, no other contributions can be made to this retirement vehicle.
SIMPLE IRA Calculator
A SIMPLE IRA plan can be an excellent way for business owners and employees to contribute to retirement savings. There are numerous components that contribute to the amount of savings you set aside for retirement. Use this SIMPLE IRA Calculator to determine how much you could potentially save.
SIMPLE IRA Providers
Fidelity SIMPLE IRA
Fidelity has consistently been one of the highest-rated multinational financial services companies in the industry. A Fidelity SIMPLE IRA offers pre-tax contributions and tax-deferred growth. For employers who choose to open a plan with the company, contributions are tax-deductible as business expenses. You will also have access to a wide range of Fidelity research and investment tools with this retirement account.
Vanguard SIMPLE IRA
A Vanguard SIMPLE IRA is a popular investment choice for business owners (100 or fewer employees) or those who are self-employed. The company offers over 100 Vanguard mutual funds with this type of plan, including index funds. There is also no required minimum investment.
Charles Schwab SIMPLE IRA
A Charles Schwab SIMPLE IRA is another popular provider of this type of retirement plan. A SIMPLE IRA with this company involves no fees to open the account, nor for its maintenance. In addition, Schwab has no required minimum deposit and does not charge for commission.
SIMPLE IRA FAQs
What are the SIMPLE IRA rules?
A SIMPLE IRA is designed for small businesses with 100 or fewer employees. Both the employer and employees can make contributions to this type of retirement account, and employees are completely vested in all funds within their SIMPLE IRA. An advantage of SIMPLE IRAs is they are not subject to the restrictions and guidelines of the Employee Retirement Income Security Act (ERISA).
As per the Internal Revenue Sevice (IRS) rules, total contributions are limited for this type of retirement vehicle. In fact, a disadvantage of SIMPLE IRAs is their lower contribution limits compared to other available retirement accounts. Total contributions include salary reduction contributions, and employer contributions which can be either nonelective contributions or matching contributions.
In addition, the IRS has placed stringent restrictions on a SIMPLE IRA rollover compared to other retirement vehicles. There is a two-year waiting period after initial participation in the plan commenced.
When is the SIMPLE IRA contribution deadline?
The deadline for employer contributions must be made to a SIMPLE IRA by April 15, or October 15 if a tax-filing extension has been granted.
As per the IRS rules, the deadline for employee salary-reduction contributions is “within 30 days after the end of the month in which the employee would have received them in cash”.
How to set-up a SIMPLE IRA?
First, you must meet the criteria of this type of retirement plan: be a business owner with 100 or fewer employees, or be self-employed. Next, choose a reputable SIMPLE IRA provider who will then walk you through the steps of setting-up this type of retirement plan.
How much can you contribute to a SIMPLE IRA?
The Internal Revenue Agency (IRS) has specific contribution limits for a SIMPLE IRA. The contributions include salary reduction contributions and employer contributions, which can be either nonelective contributions or matching contributions.
For 2020, salary reduction contributions cannot exceed $19,500. Additionally, the IRS stimulates per its SIMPLE IRA guidelines:
“If an employee participates in any other employer plan during the year and has elective salary reductions under those plans, the total amount of the salary reduction contributions that an employee can make to all the plans he or she participates in is limited to $19,500 in 2020 ($19,000 in 2019).”
If catch-up contributions are allowed with the specific SIMPLE IRA plan and you are 50 or over, then the catch-up contribution limit is $3,000.
Employer contributions are usually up to 3% of the employee’s salary. Conversely, the employer may decide to make nonelective contributions of 2% of each employees’ respective income.
As per IRS regulations, it is important to note that other than the aforementioned, no other contributions can be made to this retirement vehicle.
How to set-up a SIMPLE IRA?
First, you must meet the criteria of this type of retirement plan: be a business owner with 100 or fewer employees, or be self-employed. Next, choose a reputable SIMPLE IRA provider who will then walk you through the steps of setting-up this type of retirement plan.
How much can you contribute to a SIMPLE IRA?
The Internal Revenue Agency (IRS) has specific contribution limits for a SIMPLE IRA. The contributions include salary reduction contributions and employer contributions, which can be either nonelective contributions or matching contributions.
For 2022, salary reduction contributions cannot exceed $20,500. Additionally, the IRS stimulates per its SIMPLE IRA guidelines:
“If an employee participates in any other employer plan during the year and has elective salary reductions under those plans, the total amount of the salary reduction contributions that an employee can make to all the plans he or she participates in is limited to $20,500 in 2022 ($19,500 in 2021).”
If catch-up contributions are allowed with the specific SIMPLE IRA plan and you are 50 or over, then the catch-up contribution limit is $3,000.
Employer contributions are usually up to 3% of the employee’s salary. Conversely, the employer may decide to make nonelective contributions of 2% of each employees’ respective income.
As per IRS regulations, it is important to note that other than the aforementioned, no other contributions can be made to this retirement vehicle.
SIMPLE IRA vs 401(k)?
A SIMPLE IRA provides small businesses with 100 or fewer employees, the ability to offer retirement plans. Both the employer and employees can make contributions to this type of retirement account, and employees are completely vested in all funds within their SIMPLE IRA. An advantage of SIMPLE IRAs is they are not subject to the restrictions and guidelines of the Employee Retirement Income Security Act (ERISA).
A 401(k) is categorized as a “defined contribution plan”, where the employee funds the account with paycheck deductions prior to taxation. Additionally, with some 401(k) plans, the employer will make proportionally matched contributions to the account based on elective deferrals of the employees.
The main advantage of 401(k) plans is the potential for contributions to be proportionally matched by the employer, which are not taxed and allow the participant to exceed the contribution limits outlined by the Internal Revenue Agency (IRS). However, this type of retirement vehicle is limited by the investment options permitted within the account. As per the IRS regulations, funds from a 401(k) cannot be used to invest in numerous alternative assets, such as precious metals and real estate.
SEP IRA vs SIMPLE IRA?
A SEP IRA enables employers to make contributions to retirement accounts for both themselves and employees as outlined by the IRS. This type of retirement account is an alternate form of a traditional IRA. As per the IRS requirements, “all contributions must go to a traditional IRA, and employees are responsible for making investment decisions about their SEP-IRA accounts”. Only the employer makes contributions to these retirement accounts, and employees are completely vested in all funds within their respective SEP IRA.
Every eligible employee has an individual SEP IRA set-up for them. The IRS defines an “eligible employee” as an individual who has made at least $600 from the employer during the calendar year, is at least age 21, and been employed by the employer “at least 3 of the last 5 years”.
As previously mentioned, the SIMPLE IRA provides small businesses with 100 or fewer employees, the ability to offer retirement plans.
SIMPLE IRA vs Traditional IRA?
A SIMPLE IRA is designed for small businesses with 100 or fewer employees.
A Traditional IRA is not an employer-sponsored retirement vehicle. An individual must meet two simple criteria to open a traditional IRA: being under 70 ½ years old, and earning taxable income.
What types of gold can you invest in through a SIMPLE IRA?
Ultimately, the investment options available with a SIMPLE IRA are dependent upon your IRA custodian. However, these types of investments available to you with a SIMPLE IRA:
• Mutual funds
• Exchange-Traded Funds (ETFs)
• stocks
• bonds
• Options
• Certificates of Deposit (CDs)
• Real Estate
• Precious Metals Bullion
Unlike a traditional IRA, some SIMPLE IRAs can also be used to invest in alternative investments like IRS-approved precious metals bullion and real estate.
What are the benefits of dedicating 5-20% of your investment portfolio to precious metals like gold or silver bullion?
Investing in precious metals such as gold is an excellent hedge to protect your investment portfolio against economic uncertainties and inflation. A diversification strategy that includes gold (or other precious metals) not only protects your portfolio against market turmoil, but gold also provides significant growth potential. A simple method for diversification is to open a self-directed IRA.
What is IRA-approved gold or silver?
The Internal Revenue Agency (IRS) has stringent regulations on what types of gold and silver are permitted in an IRA. Essentially, the criteria include the purity levels of the gold or silver, and where it was minted. It is crucial to understand that only specific bullion coins and bars which meet IRA-approved purity levels are permitted in this type of retirement vehicle. Some examples of bullion coins that are approved by the IRS for investing in an IRA include American Eagles, Canadian Maple Leafs, and Austrian Philharmonic.
It is imperative to understand that the IRS does NOT permit things like collectible coins or numismatics as an IRA account. Any reputable IRA company will only recommend IRA-approved gold and silver bullion coins and bars. Be wary of any Gold IRA company that attempts to push collectible coins or numismatics as an investment option for an IRA - their intentions will be dubious.
What is a Gold IRA Company?
A Gold IRA company is a firm that acts as a custodian for the entirety of the process for setting up Gold IRAs (in addition to other Precious Metals IRAs). The process entails setting up the account, an IRA rollover or custodian-to-custodian transfer, purchasing IRA-approved precious metals, and storing precious metals in an accredited IRS-approved depository. Usually, Gold IRA companies have established relationships with traditional IRA custodians, IRS-approved accredited depositories, and precious metal dealers, which makes the process seamless for clients.
It is crucial to understand that under federal law if you open a self-directed IRA (including a Precious Metals IRA), you must have a custodian.
How do I choose the best Gold IRA company to invest with?
This is solely dependent on your personal preferences. What Gold IRA company you choose is contingent on what components are most important to you, whether it is storage options, ratings, or client services, amongst other factors. Once you have decided on your personal preferences, select numerous companies, then contact them to receive more information pertaining to both the respective firm and products offered.
What is an IRA Rollover?
Sometimes any movement of money from one retirement plan to another is often referred to as a “rollover”. However, the IRS has specific definitions for a rollover and a transfer. As per the IRS definition, a rollover occurs when the funds being moved are paid to you directly, and you then deposit the money into the other retirement vehicle.
What are the IRS rules for an IRA Rollover?
The IRS has strict regulations and rules pertaining to an IRA Rollover. The guidelines outlined by the IRS for an IRA rollover include having 60 days to deposit the money you have received, in the custodian of your choice. If you are under 59 ½, failing to do so within the 60-day timeframe from initially receiving the funds, will result in a 10% early-withdrawal penalty tax being levied on said funds.
If you receive distributions from a retirement plan and you rollover into another retirement plan, as per the IRS rules there will be no taxation on those funds. In addition, funds can only be rolled over once in a 365-day period from a specific IRA.
What are the IRS rules for an IRA Transfer?
In a trustee-to-trustee transfer (as the IRS has deemed it) you request that the original IRA custodian transfers the funds to the new IRA custodian. With a trustee-to-trustee transfer, you never touch the funds and the money transferred is not subject to taxation.
