It’s SIMPLE… the Deadline is October 1st


After an owner makes heads or tails at the end of the year, they will usually determine whether or not money is left behind for setting up some sort of long term retirement plan within their business. Since there are so many people setting up individual LLCs or home based side businesses, you need to keep a close eye out this time of year for setting up one kind of retirement plan, a SIMPLE IRA. The deadlines are just around the corner. Could this be the right type of retirement plan for you?

A SIMPLE IRA (Savings Incentive Match Plan For Employees) was first available to small business owners in 2001. A SIMPLE IRA plan is an IRA-based plan that gives small employers a simplified method to make contributions toward their employees’ retirement and their own retirement. Under a SIMPLE IRA plan, employees may choose to make salary reduction contributions and the employer makes matching or non-elective contributions. All contributions are made directly to an Individual Retirement Account or Individual Retirement Annuity (IRA) set up for each employee (a SIMPLE IRA). SIMPLE IRA plans are maintained on a calendar-year basis. See IRS Publication 560 and IRS Notice 98-4 for detailed information on SIMPLE IRA plans. (

SIMPLE IRAs are designed for businesses with under 100 people (mostly I have used these with businesses under 10 people) and people who have earned at least $5,000 in compensation for the calendar year. A SIMPLE IRA plan can be set up effective on any date between January 1 and October 1, provided the plan sponsor did not previously maintain a SIMPLE IRA plan. With October 1st looming right around the corner, you must get the program set up or the tax year will pass you by to do this type of retirement plan. Even older workers who are over the age of 70 ½ can still make contributions into a SIMPLE IRA plan. This is what makes this plan so spectacular—it can be used for both younger and older workers.

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An employee may defer up to $12,500 for 2016 (subject to cost-of-living adjustments for later years). Employees age 50 or over can make a catch-up contribution of up to $3,000 for 2016 for a maximum of a $15,500 contribution (subject to cost-of-living adjustments for later years). The salary reduction contributions under a SIMPLE IRA plan are “elective deferrals” that count toward the overall annual limit on elective deferrals an employee may make to this and other plans permitting elective deferrals. This means that you could have a small business which nets $8,000 in profit and still make an $8,000 retirement contribution provided your family has the cash flow. In addition to the ‘employee’ contribution, the employer can make a ‘match’ up to 3% dollar for dollar or the employer can make a non-elective contribution of 2% of the employee’s compensation. The majority of these I have set up over the years typically will have a matching program to force some behavior on behalf of the employee to save. If you have a small business, you can also consider hiring your spouse into the business to gain some additional retirement contribution flexibility.

SIMPLE IRAs fall under the same tax rules as regular IRAs. Typically, you will be penalized for an early distribution before the age of 59 ½, so you should consider any money you put in the plan as a long-term investment. For employers, you cannot set up a vesting schedule on this type of retirement plan as all employer contributions will be immediately vested the day that you make the matching contribution. The SIMPLE IRA plan doesn’t carry any administrative cost beyond the custodial IRA cost if there is one at all.

Most people do their tax planning sometime in December or they wait until the time they actually file their taxes. Even though it is football season, it is an important time of the year if you started a new business venture, created a home business, or earned some type of 1099 income because there could be an opportunity to make life ‘SIMPLE’ and get some more dollars set aside for your retirement.

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Ted Jenkin

Ted Jenkin, is co-CEO and Founder of oXYGen Financial and is a top ranked personal finance blogger at He is also a weekly contributor to the Wall Street Journal. Request a FREE, no obligation consultation: Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. oXYGen Financial is not affiliated with Kestra IS or Kestra AS. Kestra IS and Kestra AS do not provide tax or legal advice. Kestra IS and Kestra AS are not affiliated with any other entity listed. and