What are simple IRAs and its benefits?

You might have encountered the term simple IRA several times, but do you know what it is? If not, then stick to this write-up, and by the end of it, you will be able to gather a lot of information regarding a simple IRA and its several benefits that one can enjoy.

The Savings Incentive Match Plan designed for the workforce is known as Simple IRA. It is a kind of tax-deferred retirement plan provided by employers that allows the employees to set aside money which would grow, and that investment is for the investor’s retirement.

The IRA in the simple IRA means individual retirement account; the term makes things easier to understand. An individual can acquire several plans ranging from 401 (k), 401 (a), 402 (g), and 403 (b).

Rules of Simple IRA

Do you know about the rules of a simple IRA? If not, then look at the following points, and you will be able to gather all the important information.

1)Simple IRA can be established only by an eligible employer. Now you might be thinking about who can be considered an eligible employer, right? Not more than almost 100 employees are the one who is regarded as eligible employers. If you are an employer and have established a simple IRA, you are eligible to continue for the next two years after crossing the employee limit of 100.

2) regular IRA contributions to the Simple IRA account are not required.

3) The employer requires a certain amount of minimum contribution for Simple IRA.

4)In 2022, employers who haven’t reached the age of 50 can contribute approximately $14,000. Whereas if you are above 50, you can contribute $17,000.

5)If two years have passed, you can directly roll over from Simple IRA to Traditional IRA.

6)There are some rules related to withdrawals as well. You can withdraw your money whenever you want, but if you withdraw it before age 59½, you might have to pay a federal penalty tax of 25%. This rule is for the ones who take the distribution in the first two years of being part of the plan, whereas if you ask for it after that time, then it is approximately 10% only.

7) A participating employee pays a $10 to $25 annual maintenance fee.

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What are simple IRAs and its benefits?

Annual contribution limits

If you go through the contribution limit between the years 2005 to 2022 you might see a lot of difference in the amount.

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As in the year 2005, those below the age of 50 were allowed to contribute up to $10,000, whereas those above the age of 50 were allowed to contribute up to $12,000. In 2006 the amount remained the same for the ones under 50 but for the older ones it increased to $12,500. In 2007 and 2008, the limit went up to $10,500 for the ones below 50 and $13,000 for the ones who are above the age of 50.

From 2009 to 2012, the limit for those below the age of 50 was $11,500, whereas the limit for those over 50 was approximately $14,000. A rise of $500 was seen in the year 2013 for both the categories who were aged below and above 50. Then the limit was increased in the year 2015 and reached $12,500 for those below 50 and $15,500 for those above 50; this remained the same till 2018. In 2019 the limit for people aged below 50 was $13,000, whereas for those above 50 was $16,000.

In 2020 and 2021, the limit was $13,500 and $16,500 for the ones below the age of 50 and the ones above the age of 50, respectively. Now in 2022, the amount limit has increased by $500 and has reached $14,000 for people aged below 50, while for the ones above the age of 50, it is $17,000.

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How does a simple IRA work?

Do you know about the working of a simple IRA? Don’t worry; here’s detailed information which will make you aware of every little piece of information related to the working of Simple IRA.

•The plan allows the employer and the employees to put all the money into a traditional IRA.

•You will receive a wide range of investment options from your plan provider. Remember, the employees are free to pick their own Simple IRA.

•You get a chance to decide how much of each paycheck you might want to contribute to your account. The point to be remembered is that it’s a tax-deferred account.

•You can withdraw it anytime you want, but if you do so before 59½, then as per the rules penalty might be charged.

•If you withdraw your money after retirement, no penalty is charged, but you might have to pay some amount at that time.

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Benefits of Simple IRA

Now that you have gathered a piece of detailed information about Simple IRA, it is also important to know about its benefits. So, let us discuss the several benefits that you can enjoy.

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Flexibility and availability of options

As per the Simple IRA, the money invested by your employer in your Simple IRA is vested immediately. This means that whatever amount of money is put into your account belongs to you; it can be taken by you when you leave that company. Not only this, but you also get various options while choosing a plan for a simple IRA, so one need not worry about anything anymore.

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Easy and less expensive

Opening a simple IRA might have various benefits, but this one is the major and best. A simple IRA is quite easy and less expensive to set up than other plans. This is because of the fewer regulations and lower administrative costs. Because of these reasons, one needs not to worry about anything and can cherish several benefits of a simple IRA.

Tax advantages

Small business owners have always been cribbing about the tax deduction made for any contribution they used to make to their employees’ accounts. But not anymore, because with a simple IRA, you can remove this fear and pressure from your mind.

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Simple IRA has been very helpful for employers as well as employees. Both can enjoy benefits like tax advantages, ease to set-up, less expensive, flexibility and availability of options from Simple IRA. Because of its numerous benefits, a simple IRA is opted for by all kinds of businesses, especially small-scale businesses.

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