The Benefits of a Simple IRA: How to Use a Simple IRA for Small Business Retirement Savings

A Simple IRA is a great retirement savings option for small business owners. It allows them to save up to $12,500 per year in pre-tax contributions, with an additional $3,000 catch-up contribution for those over the age of 50. Employers can match these contributions as well, making it a great way to maximize your retirement savings. In this article, we will look at the benefits of a Simple IRA and how to use one for small business retirement savings.

Benefits of a Simple IRA

The biggest advantage of a Simple IRA is its flexibility. It allows employers to choose from several different investment options and customize their plan according to their needs. This makes it easier for employers to tailor their plan based on their budget and goals.

In addition, employers can deduct up to 25% of employee contributions from their taxable income. This can help reduce taxes owed and increase overall financial security by reducing taxable income in the future.

Employers also benefit from the fact that there are no annual filing requirements or fees associated with setting up and maintaining a Simple IRA account. This makes it much easier for small business owners who may not have the time or resources available for complex financial planning tasks like filing tax returns or paying fees associated with other types of retirement accounts.

Lastly, unlike traditional IRAs or 401(k)s which require a minimum distribution at age 70 ½ years old, there is no such requirement with Simple IRAs which means that funds saved can remain invested longer and compound over time leading to more substantial returns in the long run.

How To Use A Simple IRA For Small Business Retirement Savings

To get started with a Simple IRA you’ll need to first select an administrator who will be responsible for managing your account and investments on behalf of your business and employees - usually this is an online brokerage firm or bank like Vanguard or Fidelity Investments etc., who provide access to different investments like stocks, bonds etc., as well as extensive customer service support should you ever need it.

Once you’ve selected an administrator you’ll need to set up an account where your employees’ contributions are deposited into - this will be used as the main source from which funds are withdrawn when needed after retirement; typically employers will match employee contributions up to 3% but they are not required by law do so if they don’t want too - however doing so helps incentivize employees by providing them with more money for retirement in addition to whatever they might be saving themselves outside the company plan if any (which could be beneficial come tax time).

After setting up your account you’ll need determine what type of investments you would like your money allocated towards - this could include stocks, bonds mutual funds etc., depending on what type of risk tolerance and return rate you are looking for; typically employers will either let employees decide how they want their money invested (or provide advice on what might work best given certain factors), or alternatively just allocate all funds into one basket such as low cost index funds which tend offer broad diversification across different markets while still providing good returns over time (especially when combined with employer matching).

Conclusion

The benefits of using a Simple IRA are clear: it offers flexibility when it comes investment options while still providing tax advantages that can help businesses reduce taxable income in the future; plus there are no annual filing requirements or fees associated setting up maintaining one which makes it ideal choice those who don’t have much time or resources available complex financial planning tasks like filing taxes paying fees associated other types accounts; finally unlike traditional IRAs 401(k)s there also no required minimum distributions age 70 ½ years old allowing funds saved remain invested longer compound even more substantial returns long run - making perfect tool help businesses reach goals both now future!