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Why Choose Z Tax & Accounting
At Z Tax & Accounting, we specialize in helping small business owners nationwide establish and manage SIMPLE IRA plans.
Our team handles:
Plan setup and compliance
Employer contribution strategies
IRS and DOL filing requirements
Employee eligibility and communication
Tax reporting and year-end documentation
We make the process simple, efficient, and fully compliant — so you can focus on growing your business while building financial security for yourself and your employees. Contact us Today !
A SIMPLE Plan (Savings Incentive Match Plan for Employees) is an easy and affordable way for small businesses and their employees to save for retirement.
Businesses with 100 or fewer employees can set up a SIMPLE plan.
It has lower start-up and maintenance costs than most other retirement plans.
A SIMPLE plan can be set up as:
A SIMPLE IRA, or
A SIMPLE 401(k).
Employees can contribute by setting aside a part of their paycheck, and employers must also make contributions (either matching or flat-rate).
SIMPLE Plans can only run on a calendar-year basis (January to December) and must be offered to all eligible employees.
Who Is Eligible?
To qualify, an employee must:
Have earned at least $5,000 in any two previous years, and
Be expected to earn at least $5,000 in the current year (e.g., 2024).
A SIMPLE IRA must be set up for every eligible employee. These employees cannot opt out of being included in the plan, unless they fall under one of these exceptions:
They're covered by a union agreement, or
They're non-resident aliens with no U.S. income.
Employers can allow more employees to participate, but they cannot make the rules stricter than what’s listed above.
Restrictions on Having Other Retirement Plans
A business cannot have another retirement plan if it offers a SIMPLE plan — unless the other plan is only for union workers.
Businesses must stay under the 100-employee limit.
If a business grows and goes over 100 employees, it gets a 2-year grace period to switch to another retirement plan.
All employees, even those not eligible for the plan, count toward the 100-employee limit.
SIMPLE IRA Plans: How They Work
A SIMPLE IRA is easier for employers to manage than many other retirement plans.
No annual IRS filings are required.
Employees can contribute to their own retirement accounts.
Employers must make contributions, either by:
Matching what employees contribute (up to a limit), or
Making flat contributions for all eligible employees.
Before each plan year, employers must notify employees:
Of their right to participate,
How much they can contribute, and
The employer's contribution type (match or flat-rate).
Contribution Limits (2024)
Employees can contribute up to 100% of their salary, capped at $16,000.
Employees age 50 or older can contribute an extra $3,500 (catch-up contribution).
Employers can’t restrict how much employees contribute — they can only enforce the legal limits.
Employer Contributions (Can Choose One):
Matching Contributions: Match what employees contribute, up to 3% of their pay.
This match can be as low as 1%, but only in 2 out of 5 years.
Nonelective Contributions: Contribute a flat 2% of pay for every eligible employee — even if the employee doesn't contribute.
Extra Contribution Option (SECURE 2.0)
Starting in 2024:
Employees may be allowed to contribute an extra 10% above the regular limit if:
The business has fewer than 25 employees, or
The business has 26–100 employees and agrees to:
A 4% match, or
A 3% nonelective contribution.
Also, employer contributions are calculated based on a maximum salary of $345,000 per employee (2024 limit).
Key Rules for Employers
Each year, the employer must choose whether to do matching or nonelective contributions.
This choice must be shared with employees before the annual election period (usually 60 days before the year starts).
If choosing nonelective contributions, the employer must contribute to all eligible employees, even those who don't contribute themselves.
Employee Participation and Vesting
Employees can change how much they contribute during the annual 60-day election period.
All contributions (employee and employer) are 100% vested — meaning the money belongs to the employee immediately.
Employees can withdraw money anytime, but:
They may have to pay income taxes, and
A penalty if they’re under age 59½.
Contribution Timing
Employee contributions must be deposited into their account within 30 days after the month they were withheld.
Example: Contributions withheld in April must be deposited by the end of May.
Employer contributions must be made by the tax return due date, including extensions.
Setting Up a SIMPLE IRA
You can start a plan anytime from January 1 to October 1 — as long as you haven’t had a SIMPLE plan before.
If you're a new business formed after October 1, you can start a plan as soon as it's administratively possible.
Tax Deductions and Reporting
Employers can deduct contributions if made by the tax filing deadline (with extensions).
You cannot require employees to stay employed on a specific date to receive employer contributions.
Even if an employee quits mid-year, they’re still entitled to contributions earned.
W-2 Reporting:
SIMPLE IRA contributions are not reported in Box 1 of the employee’s W-2.
They are reported in the Social Security and Medicare wage boxes.
Distributions from a SIMPLE IRA
Participants can withdraw from their own SIMPLE-IRA at any time. However early withdrawals can have serious tax implications. Unless they are rolled over, distributions are taxable in the year they are received. If a participant takes a withdrawal from a SIMPLE IRA before 59 1/2, a penalty tax of 10% may apply. If the withdrawal takes place within two years of initially joining the SIMPLE IRA plan, the penalty is increased to 25%. SIMPLE IRA contributions and earnings may be rolled over tax-free from one SIMPLE IRA to another. A rollover may also be made from SIMPLE IRA to another type of IRA. Distributions from SIMPLE IRAs must occur eventually, and SIMPLE plans are subject to required minimum distributions (RMDs).
Ending a SIMPLE Plan:
A SIMPLE retirement plan must run for the full calendar year (January to December).
Employers cannot end or pause the plan in the middle of the year, and employers must continue matching employee contributions through the end of the year.
This rule applies even if your business follows a fiscal year instead of the calendar year.
The only exception is the first year the plan is started.
How to End a SIMPLE Plan:
Employers can only end the plan at the end of the year.
To do this, Employer must give written notice to all employees before November 2 of that year.
Employers do not need to inform the IRS, but you must inform your employees in writing that the plan will be terminated
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