SIMPLE IRA | Retirement | Lord Abbett
Image alt tag

Error!

There was a problem contacting the server. Please try after sometime.

Sorry, we are unable to process your request.

Error!

We're sorry, but the Insights and Intelligence Tool is temporarily unavailable

If this problem persists, or if you need immediate assistance, please contact Customer Service at 1-888-522-2388.

Error!

We're sorry, but the Literature Center checkout function is temporarily unavailable.

If this problem persists, or if you need immediate assistance, please contact Customer Service at 1-888-522-2388.

Tracked Funds

You have 0 funds on your mutual fund watch list.

Begin by selecting funds to create a personalized watch list.

(as of 12/05/2015)

Pending Orders

You have 0 items in your cart.

Subscribe and order forms, fact sheets, presentations, and other documents that can help advisers grow their business.

Reset Your Password

Financial Professionals*

Your password must be a minimum of characters.

Confirmation Message

Your LordAbbett.com password was successully updated. This page will be refreshed after 3 seconds.

OK

 

SIMPLE IRA

A SIMPLE IRA enables small businesses to have an easy and cost effective retirement savings program while receiving a federal tax deduction.

Overview

Overview

This material is intended as general information only and is not intended as legal or tax advice. Some of this information may be quite complex and we strongly suggest you consult with your advisor or tax professional based on your individual situation.

What is a SIMPLE IRA?

A Savings Incentive Match Plan for Employees (SIMPLE) is an IRA based retirement savings plan that offers small business owners an easy and cost effective way to assist employees in saving for their retirement as well as their own.

How does a SIMPLE IRA work?

A SIMPLE IRA enables eligible employees to save for retirement on a pretax basis. In 2020, employees can make contributions up to $13,500 plus a catch-up contribution of $3,000 for those individuals age 50 and older. In addition, the employer must either make a 100% immediately vested match up to 3% of compensation or 2% non-elective contribution1.  

Who should consider a SIMPLE IRA?

  • Business owner who wants to reduce current taxes while saving for retirement
  • Business owner looking for a low-cost retirement savings program
  • Business owner who wants to attract and reward employees by offering an attractive retirement savings option

 

1 A SIMPLE IRA non-elective contribution is an employer contribution to all eligible employees equal to 2% of pay up to the first $285,000 of earnings whether or not the employee makes any payroll investments.

RELATED RESOURCES


  Application
  Transfer Form
  Flyer
  Plan Sponsor Guide
  Retirement Plan Limits

Eligibility

Eligibility

This material is intended as general information only and is not intended as legal or tax advice. Some of this information may be quite complex and we strongly suggest you consult with your advisor or tax professional based on your individual situation.

Who is eligible to establish a SIMPLE IRA?

An employer with 100 or fewer employees who received at least $5,000 in compensation during the preceding calendar year can establish a SIMPLE IRA.

A SIMPLE IRA can be established by the following entities:

  • Sole-proprietor
  • Self-employed
  • Partnership
  • Limited Liability Corporation (LLC)
  • Nonprofits

An employer may not sponsor another qualified plan (i.e. 401(k)) for a calendar year in which a SIMPLE IRA plan is maintained.

Who is an eligible employee?

SIMPLE IRA eligibility includes any employee who satisfies the following criteria:

  • Received at least $5,000 in compensation from the employer during any two prior years and is expected to receive at least $5,000 in compensation during the current year


SIMPLE IRA may also cover the following employees:

  • Nonresident alien with U.S. income and
  • Employees covered by a collective bargaining agreement


What is the SIMPLE IRA employee notification requirement?

Prior to the employees' 60-day election period (generally begins on November 2nd prior to each calendar year), the plan sponsor must provide to each eligible employee:

  • Details concerning the employee's opportunity to make or change a salary reduction;
  • Employer's decision to make either a matching or non-elective contribution; and
  • Summary description.
 

Contributions

Contributions

This material is intended as general information only and is not intended as legal or tax advice. Some of this information may be quite complex and we strongly suggest you consult with your advisor or tax professional based on your individual situation.

How much can be contributed to a SIMPLE IRA?

Employee: A maximum annual pre-tax contribution of $13,500 in 2020 plus an additional $3,000 for those individuals age 50 and older. 

Employer: An annual required contribution of one of the following: match contribution equal to 3% of employee compensation or a 2% non-elective contribution for all eligible employees. The matching contribution can be reduced to as little as 1% in any two out of five years.

When are contributions required to be made to a SIMPLE IRA?

Employee: Contributions must be made to an employee’s SIMPLE IRA account within 30 days after the end of the month in which the amounts would otherwise have been payable to the employees.

Employer: Contributions must be made no later than the employer’s tax filing date, including extension.

Can an individual contribute to both a SIMPLE and a traditional IRA?

YES. A traditional IRA contribution would be in addition to any SIMPLE IRA contributions, for both employee and employer. In 2020, the traditional IRA contribution limit is $6,000 and $7,000 for those investors age 50 and over.

The same rule and contribution limits apply assuming you qualify to fund a Roth IRA.

Are SIMPLE IRA contributions deductible?

Pretax salary deferrals made to a SIMPLE IRA are deductible to the employee, whereas employer contributions (match or non-elective) are deductible to the employer.
 

Distributions

Distributions

This material is intended as general information only and is not intended as legal or tax advice. Some of this information may be quite complex and we strongly suggest you consult with your advisor or tax professional based on your individual situation.

What types of distributions can be taken from a SIMPLE IRA?

There are a number of different distributions that can be taken from a SIMPLE IRA. We discuss each distribution type below.

  • Normal
  • Premature (without an exception)
  • Premature (with an exception)
  • Required minimum distribution (RMD)
  • 60-day rollover
  • Distribution due to death

What is a normal distribution from a SIMPLE IRA?

A normal distribution from a SIMPLE IRA occurs after the owner attains age 59½. A normal distribution is subject to taxation in the year withdrawn but the 10% (increased to 25% in the first two years of participation) early withdrawal penalty tax does not apply.

What is a premature distribution (without an exception)?

A premature distribution occurs upon the owner withdrawing funds before age 59½ and no exceptions apply. A premature distribution is both taxable and subject to a 10% (25% in the first two years of participation) early withdrawal penalty tax.

What is a premature distribution (with an exception)?

A premature distribution (with an exception) from a SIMPLE IRA occurs upon the owner withdrawing funds before age 59½ and satisfying an exception. A premature distribution is subject to taxation but the 10% (25% in the first two years of participation) early withdrawal penalty tax does not apply.

Common exceptions to the 10% additional penalty tax on early withdrawals are:

  • Substantially equal periodic payments (“72(t)”)
  • Disability
  • Death 
  • Qualified higher education expenses
  • Payment for health insurance premiums after receiving unemployment benefits for more than 12 weeks
  • Unreimbursed medical expenses (greater than 10% of adjusted gross income) 
  • First-time home purchase (lifetime limit of $10,000) 
  • IRS Levy


What is a required minimum distribution (RMD) from a SIMPLE IRA?

The SECURE Act of 2019 changed the age of the required beginning date from age 70½ to 72. The change only applies to individuals who turned 70½ after December 31, 2019.

Click here to read how the SECURE Act changed required minimum distributions.

A SIMPLE IRA account owner is required to take a minimum distribution the year they turn age 72. The minimum distribution rules permit the initial or first minimum distribution to be deferred until April 1st of the following year. Delaying a required minimum distribution would require the account owner to take two RMDs the following year.

If the full RMD is not taken in a given year, a 50% penalty tax is assessed on the amount that should have but wasn't taken.

An individual age 72 or older is eligible to participate assuming SIMPLE IRA eligibility requirements have otherwise been satisfied. However, the individual must also take minimum distributions.

What is the 60-day withdrawal and rollover rule?

Once in a 12-month period, an IRA account owner may withdraw any amount, for any reason, from any of his/her IRAs and repay the IRA within 60 days without being subject to taxation or an early withdrawal penalty. If the withdrawal is not repaid in the allotted 60-day time frame, the account owner will be subject to potential taxation and penalties.

The one IRA rollover per year applies on a per-taxpayer basis—not per IRA. Therefore, an investor can elect a single 60-day withdrawal and rollover in a 365-day period regardless of the number or type of IRAs owned.

What death benefits are available from a SIMPLE IRA?

When a SIMPLE IRA account owner dies, an inherited or beneficial IRA is created. However, inherited IRA treatment differs depending on who inherits the account. SIMPLE IRAs inherited by a surviving spouse differ from a non-spouse beneficiary.

Spousal beneficiary

A spousal beneficiary has the following options available upon inheriting a SIMPLE IRA:

  • Treat the IRA as his or her own IRA
  • Rollover the IRA into his or her own IRA
  • Transfer the IRA to an employer sponsored plan where he or she is a participant
  • Remain a beneficiary.


Non-spouse beneficiary

The Setting Every Community for Retirement Enhancement (SECURE) Act passed into law in December 2019 introduced significant changes to long-standing rules that apply to retirement accounts inherited by a non-spouse beneficiary. The new rules apply to those account owners that die after December 31, 2019.

One of the most significant changes was the elimination of the ‘stretch’ provision for most non-spouse designated beneficiaries of inherited retirement accounts and the introduction of a “10-Year Rule” thus requiring certain beneficiaries to liquidate the entire balance of their inherited retirement account within ten years after the account owner’s death.

 

Please confirm your literature shipping address

Please review the address information below and make any necessary changes.

All literature orders will be shipped to the address that you enter below. This information can be edited at any time.

Current Literature Shipping Address

* Required field