When Saving for Retirement, It Pays to Keep It SIMPLE

BY: Christine Sperry


It's a job seeker's market, with open positions in many regions and fields outnumbering available candidates. For that reason, employers have needed to be increasingly creative in the ways they find and attract talent. Applicants are looking for more than just a salary – when considering new career landing spots, they're paying closer attention to the benefits a company offers than ever before. One such benefit that a small company can provide to its staff is a SIMPLE individual retirement account (IRA) plan. 

SIMPLE is an acronym for "Savings Incentive Match PLan for Employees," and it allows employers and employees alike to contribute. It can be ideal for small businesses (100 or fewer employees) because it's easy to establish and there are no filing requirements. 

For 2022, the annual employee SIMPLE IRA contribution limit is $14,000; for folks aged 50 and older, it's slightly higher, at $17,000. These limits are subject to cost-of-living adjustments, so they may increase over time. An employer is required to annually contribute either a match up to 3% of compensation (not limited by the annual compensation limit), or a 2% non-elective contribution for each eligible employee. Under the "non-elective" contribution formula, even if an eligible employee doesn't contribute to his or her SIMPLE IRA, that employee must still receive an employer contribution to their account equal to 2% of their compensation up, to the annual limit of $305,000 for 2022.

Employees are always 100% vested in all SIMPLE IRA monies, and participants can invest IRA assets in many ways, some of which may benefit from tax-deferred growth. Like withdrawals from traditional IRAs, withdrawals from SIMPLE IRAs are taxed as ordinary income and, if taken before the withdrawer reaches the age of 59 ½, may be subject to a 10% federal income tax penalty. Generally, once a person reaches the age of 72, they must begin taking required minimum distributions.

Overall, SIMPLE IRAs are just that: SIMPLE. And they just may be the benefit that your new and existing employees are looking for. If you're an employer or individual looking for more information on the ways that a SIMPLE IRA can benefit you, please reach out to me today at (608) 835-1247. I look forward to speaking with you!

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