Low Cost Retirement Plan for Non-Profits
Easy to set up and maintain retirement plan with minimal requirements
Non-Profit SIMPLE IRA Plans
A SIMPLE IRA (Savings Incentive Match Plan for Employees) is a low-maintenance retirement plan. Because of its design, it is exempt from much of the testing associated with other retirement plans.
A SIMPLE IRA works well in small organizations that want to provide employees with a pre-tax retirement program that mandates employer contributions.
Why a SIMPLE IRA Could Be The Perfect Retirement Plan for Non-Profits
When looking at retirement plans for nonprofits, SIMPLE IRA plans are one of the best options.
Non-profits are expected to fully accomplish their mission while operating on a shoestring budget. It is not uncommon for employees to wear multiple hats, take on multiple responsibilities, and be stretched thin.
Because of these common issues, a SIMPLE IRA plan is perfect for non-profits. SIMPLE IRA plans are:
- Easy to set up
- Easy to administer
- Have minimal costs
The majority of the work is outsourced to the financial advisor and their team. So, the non-profit can help provide individual retirement saving opportunities for their employees.
This helps the organization stay competitive in the market while not having to add additional work and fees to their organization as compared to other retirement plans.
How Does a SIMPLE IRA Work?
In order for a non-profit company to use a SIMPLE IRA, it must have less than 100 employees.
The IRS does not categorize SIMPLE IRA plans as qualified plans. Since it was designed for start-ups and small organizations, a non-profit would not have to worry about:
- Non-discrimination testing
- Top-heavy testing
- Vesting schedules
- Tax reporting
This plan allows employees to put tax-deferred money aside to save for retirement.
3 Easy Steps to Set Up a SIMPLE IRA
Forming a SIMPLE IRA plan can likely be completed in an afternoon through these three steps:
1. Execute a Written Agreement
This means filling out an IRS Form 5304-SIMPLE or 5305-SIMPLE which defines the rules of the plan. Once this is filled out, it must be kept on file. It does not need to be filed with the IRS.
2. Set up a SIMPLE IRA account for every employee
Using the providers' platform, the plan sponsor will create accounts for each employee.
3. Provide notice to every eligible employee
The signed Form 5304-SIMPLE or 5305-SIMPLE must be distributed to the eligible employees when they join the plan and each year afterward.
Once these steps are completed, the plan has been set up and both parties can begin making contributions.
2023 SIMPLE IRA Contribution Limits
When employees join the SIMPLE IRA, they are automatically vested in the plan. This means from the time contributions start, the employee has full ownership of the invested funds and can deposit and withdraw at any time.
In 2023 there is an employee contribution limit of $15,500. If a participant is over the age of 50, they can contribute an additional $3,500, making the total $19,000 for 2023. It is important to note that this is less than a 401(k), but more than a traditional IRA would allow for.
SIMPLE Plans only allow pre-tax contributions, which means that this plan can only be used like a traditional IRA. The participant will not be able to contribute after-tax dollars like they could in a Roth IRA.
Since employer contributions are mandated, there are a couple of options on how the employer chooses to do this. An employer may choose between a contribution to the employee or a matching contribution:
- Pay the eligible employee between 2 percent of their earnings each year
- Match 100 percent of their contributions, up to 3 percent of their salary
With the first option, a contribution will be made to the employee regardless of if they make their own contributions. With the second option, the employee must make a contribution to receive any amount matched.
There are limited situations where these contributions can be reduced, but it is important to meet with a specialist to determine eligibility.
SIMPLE IRA Costs
When setting up a SIMPLE IRA, there are little to no administration costs, unlike a 401(k) or 403(b) plan.
Some recordkeepers will charge an annual fee for having the account and most will generally charge an investment fee as a percentage of total assets.
The investment fee is dependent on which fund the assets are held in, as it is different for each fund. The cost to the employer will be the mandated employer contributions. dfsgsdgf
SIMPLE IRA Restrictions
Participants do not have the option for loans in a SIMPLE IRA.
The only way to access funds before retirement age is to withdraw them.
Unfortunately, doing so is met with a 25% penalty, which is notably higher than the 10% penalty for a traditional IRA.
Chat with a SIMPLE IRA Advisor
Langan Financial Group's SIMPLE IRA advisors have over 100 years of experience servicing retirement plans for organizations.
Give us a call at 717-288-1880 to see how our local advisors can help with your retirement plans. Or visit our retirement plan advisor contact page to fill out an inquiry.
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