Deadline for Starting a New SIMPLE IRA Plan for This Year Fast Approaching

Tuesday, September 09, 2014

By Joe Cicchinelli, IRA Technical Expert
Follow on Twitter: @JoeCiccEdSlott

If you own a business and you’re thinking about starting a retirement plan for 2014, you may want to look at a SIMPLE IRA Plan (Savings Incentive Match Plan for Employees).

A SIMPLE IRA plan can give you a good source of income when you retire by allowing you and your employees to save money. A SIMPLE IRA Plan is a special type of IRA that operates a lot like a 401(k) plan without the complications and operating costs of a conventional 401(k) plan.

SIMPLEs are available to any small business – generally a business with 100 employees or less. Generally you and your employees can choose to make a pre-tax deferral from your salary (or compensation) and then the employer matches that contribution, dollar-for-dollar, up to 3% of each person’s compensation. The maximum salary deferral contribution that can be made for 2014 is $12,000 for those under age 50, or $14,500 for those ages 50 or older. There are special contribution rules for determining your compensation if you’re a self-employed business owner, such as a sole proprietor. Check with a tax advisor or see IRS Publication 560 for more information.

But don’t wait too long to set-up a SIMPLE IRA Plan because there’s a deadline that’s fast approaching. If you’ve owned an existing business, you must establish a SIMPLE IRA plan by October 1, 2014 for this year. However, if you start a new business this year after October 1st, then you can establish SIMPLE IRA Plan for this year after October 1st (but no later than December 31, 2014) as long as you establish it as soon as it’s administratively feasible. If you previously had a SIMPLE IRA Plan for your business, it’s too late to start one for 2014, but you could re-establish one for next year, effective January 1, 2015.

 

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