Simple IRA Information

The SIMPLE IRA is designed so that small businesses (less than 100 employees) may offer their employees a tax advantaged retirement program. There are no filing requirements for the employer and no initiation or operating costs. Employers cannot have any other employee sponsored plan.

Employee participation

To participate, generally, employees earning at least $5,000 during any 2 prior years and that expect to earn at least $5,000 during the current calendar year are eligible. Participation is voluntary and employees are 100% vested in all SIMPLE IRA funds.

Funding

Contribution Information

Employers are required to contribute each year for each eligible employee, with either a

  1. Matching contribution up to 3% of compensation (not limited by the annual compensation limit)

  2. 2% non-elective contribution

Employees can contribute up to $15,500 per year (anyone age 50 and older can add an additional $3,500 catch up contribution) through salary reduction. Contributions limits are set by the IRS each year. Amounts and percentages shown are for 2023.

Contribution Method

Simple IRA accounts can only be funded by contributions made through the Employee Plan Administrator (EPA) account. Employers will fund their EPA account and then distribute the funds to the SIMPLE IRA employee accounts. EPA’s will use their Portal to provide Interactive Brokers with instruction for transferring funds to the employee accounts.

Withdrawals

SIMPLE IRA withdrawals are typically subject to income tax on any amount withdrawn. Early withdrawals, which are those made prior to the account holder reaching the age of 59 ½, may be subject to an additional tax of 10% or 25%.

An employee can withdraw from the SIMPLE IRA whenever they wish. They will be subject to tax requirements.

Transfers

The employee can transfer into their SIMPLE IRA from a SIMPLE IRA, Traditional IRA, SEP IRA, as well as from employer-sponsored retirement plans (e.g. 401k, 403b, 457 (b)). SIMPLE IRAs cannot accept rollovers from Roth IRAs or Roth designated employer-sponsored plans.

Account Creation and Administration

Simple IRA Stakeholders

There are four Stakeholders who work together and have roles and responsibilities specific to the establishment and management of Simple IRA accounts: 1) Employer, 2) Employee, 3) Financial Advisor, and 4) Interactive Brokers. All.

Employer

Employers can only offer a Simple plan if they do not have any other employer sponsored retirement plans. Simple IRA accounts can only be opened under a Professional Registered Financial Advisor account with an existing account at Interactive Brokers. The employer must complete an Employee Plan Administrator (EPA) account application. In addition to many of the standard account opening documents, applicants will also need to provide IRS Form 5305 where they select a single financial institution ("Interactive Brokers") for all plan accounts.

The employer is responsible for making sure the plan is up-to-date with current law(s).

Employee

To participate in their employer’s Simple IRA plan, employees will need to use the Employer provided invitation to open a Simple IRA account which will automatically be associated with the Employer selected Advisor. Employees are not obligated to participate or may choose to participate without making their own contributions. All deposits to the accounts are managed by the Employer, with the exception of transfers from existing Simple accounts held at other firms.

Professional Financial Advisor

Once the Advisor and EPA have established their association, Simple IRA accounts are managed by the Advisor in the same way as all other account types. Advisors have access to the same suite of trading, management tools and services offered as part of the Advisor program at Interactive Brokers.

Interactive Brokers

Interactive Brokers processes EPA and Simple IRA applications in the same manner as for all other application types. IBKR provides the same systems, resources and services to Advisors managing Simple IRAs as any other account type.

Managing Contributions

Simple IRA accounts can only be funded by contributions made through the Employee Plan Administrator (EPA) account. Employers will fund their EPA account and then distribute the funds to the Simple IRA employee accounts. EPAs will use their Portal to provide Interactive Brokers with instructions for transferring funds to the employee accounts.

Below are details regarding the sources and amounts of the Contributions.

  • Contributions to employee accounts are required to be made from the EPA account.

  • Advisors cannot transmit money on behalf of the employer.

  • Employers must not make deposits directly into employee accounts.

Contributions intended for employee accounts should be made by the employer via salary reduction. The employer will fund the EPA account using our standard funding methods, such as mailing a check or by wire. Employers are required to contribute to their employees' accounts and have two options to do so.

  • Option 1— “Employee Match”— The employer matches employee contributions up to 3% of their salary. Employees must make participating contributions before the employer can make matching contributions.

  • Option 2— “Employer Non-Elective”— The employer makes an automatic 2% contribution to employee accounts. Employer contributions are not contingent on employee contributions.

Through a “Salary Deferral”, employees can contribute up to $15,500 per year (anyone age 50 and older can add an additional $3,500 catch up contribution). There is no maximum age limit.

Contributions permitted up to the max contribution are set by the IRS each year. Amounts and percentages above are for 2023.

Detailed step by step instructions on how to open a Simple IRA account can be found here.