Question

what are the Employers reasones for choosing a simple IRA?

Answer 1

Following are the Employers reasons for choosing a simple IRA:

1) Tax-deferred savings

As with other types of IRAs and employer-sponsored retirement plans, SIMPLE IRAs allow employees to defer a portion of their salaries into these plans. The money grows tax-deferred until distributions are taken at retirement. This allows savings to compound more quickly.

2) Easier to run

SIMPLE IRAs do not require most of the bureaucracy that comes with qualified plans, such as non-discrimination and top-heavy testing, vesting schedules, and tax reporting at the plan level. SIMPLE IRAs are relatively easy to set up and run, and employers don’t need to hire specially trained staff.

3) Mandatory, instant vesting

Matching employer contributions belong to the employee immediately and can go with them whenever they leave, regardless of tenure. (Employer match contributions in qualified retirement plans, such as 401(k)s, usually come with either a cliff or graded vesting schedule that requires employees to stay with at the company for a specified number of years before they own all matching contributions.) What's more, employers who set up SIMPLE IRAs are required by law to match employee contributions. This is not required for qualified plans; employers can choose to offer no match.

4) Contribution limits: Better than IRA, worse than 401(k)

For 2019, employees can defer up to $13,000 of income to a SIMPLE IRA, with another $3,000 in catch-up contributions allowed if they are 50 or older. This is less than the $19,000 contribution/$6,000 catch-up limit permitted for a 401(k) or other qualified plan. But it's more than the $6,000 contribution/$1,000 catch-up limit for an IRA.

5) Tax credit for employers

Companies that sponsor SIMPLE IRAs can receive a tax credit for 50% of necessary eligible startup costs, up to a maximum of $500 per year for the first three years of the plan. Employers qualify to claim this credit if they had 100 or fewer employees who received at least $5,000 in compensation for the preceding year and at least one plan participant who was not a highly compensated employee, and if the same employees weren't recently covered by similar plans.

6) Multiple investment choices

SIMPLE IRA contributions can be invested in "individual stocks, mutual funds, and similar types of investments," according to the IRS. Many plans offer growth, growth and income, income, and specialized funds such as sector funds or target-date funds.