Must You Participate in SIMPLE IRA Plan

Must all eligible employees participate in the SIMPLE IRA plan?

No, an eligible employee is not required to make contributions to the plan.

Participation is voluntary. Participating employees must establish a SIMPLE IRA to receive elective deferrals and employer matching contributions.

If an employee does not establish a SIMPLE IRA account before contributions must be made on the employee's behalf, the employer may establish a SIMPLE IRA for the employee. 

An employer may elect to make a 2% of compensation contribution on behalf of each eligible employee (both participating as well as nonparticipating), instead of making matching contributions. If an employee does not establish a SIMPLE IRA account before contributions must be made on the employee's behalf, the employer will establish a SIMPLE IRA for the employee.

Example: ABC Corporation established a SIMPLE IRA plan and elected to make a 2% nonelective contribution for each eligible employee who receives at least $5,000 in compensation from the employer during the year. Employee A is eligible but chose not to participate during the year. The employer must still make a nonelective contribution on the employee's behalf and must establish a SIMPLE IRA account for the employee to accept the contribution.

What are the fees to establish a SIMPLE IRA Plan?

Each SIMPLE IRA account is assessed an annual account maintenance fee of approximately $15-$50 when the account is opened and every year thereafter. The annual maintenance fee is suaully submitted with the SIMPLE IRA application.

In addition, there is a termination fee of approximately $75 when the account is closed, unless the distribution is due to retirement (age 59½), total disability or death.

*The annual IRA account maintenance fee is usually waived for large accounts.

Ultimately, it is the employee's responsibility to pay his or her maintenance and termination fees for his or her own account.

There is usually no additional fee to the employer for using SIMPLE IRA Employer Agreement.

Must the employer file IRS Form 5500 or any other form on an annual basis for a SIMPLE IRA plan?

No.

There are no annual filing requirements for a SIMPLE IRA plan.

Where can I get more information about SIMPLE IRA plans?