SIMPLE IRA an Excellent Choice for Small Business Retirement Plan

Small business owners looking for a tax favored retirement plan for themselves and their employees should consider the new SIMPLE IRA recently authorized by Congress.

The SIMPLE is similar to a 401k. Here is a very basic description of the program:

1. Employees make pre-tax contributions to their own SIMPLE IRA account through payroll deductions. (we can setup accounts for each employee and help you handle the payroll issues).

2. Employees choose investment vehicles for their deposits (usually stock and bond mutual funds - we can help them choose).

3. Employers make tax deductible matching contributions, not less than 1% and not more than 3% of the employee's salary, to each employee's account. (there are specific regs. regarding this. Call us for details)

4. The plan must be made available to all eligible full time employees.

5. There are no limits regarding highly compensated employees. Even if other employees choose not to fully participate, owners and highly compensated employees can still contribute up to the maximum of $10,000 per year plus employer match up to 3% of pay. (limits as of 2005)

6. There are penalties for early withdrawal (prior to age 59 1/2). Certain exceptions (education, home purchase, etc.) apply, but there are limits. (get advice from your financial advisor before taking early distribution for any reason)

Many owners of smaller companies find that the tax savings generated by their own contributions, combined with tax credits offered by the government, can offset some or all of the cost of administration and matching contributions.

Find out if a SIMPLE IRA is best for you and your company. Call or email Frontier for a free consultation.

Frontier Financial Planning is based in central New Jersey, serving small business owners in Somerset, Hunterdon, Middlesex, Union, Morris, Mercer, and northern Monmouth Counties. Our mission is to help small business owners and their employees achieve financial independence through the intelligent implementation and management of tax advantaged corporate retirement plans. We believe the key to success is not the plan, so much as the advice that goes with the plan. We therefore commit to helping both our owner clients and their employees make wise and well informed investment decisions.

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