In 2017, if a company sponsors a profit-sharing plan, the company could make a contribution on behalf of the business owner of as much as $54,000. With a SIMPLE IRA, the maximum amount this year is $31,000. If that’s the case, why would you consider the latter choice?

ESTATE PLANNING

One reason can be found in the plan’s name; a SIMPLE (savings incentive match plan for employees) IRA has less paperwork as well as lower
start-up and operating costs, compared with many other types of retirement plans. As long as your company is eligible (it must have no more than 100 employees and must not sponsor another retirement plan), you can set up the plan by filling out IRS Form 5304-SIMPLE or 5305-SIMPLE.

Subsequently, there is no annual filing requirement and no testing for discrimination in favor of highly-compensated employees. The only other requirement is annual notification, which you can meet by sending each employee a copy of the original 5304-SIMPLE or 5305-SIMPLE. A SIMPLE IRA can also work if you are just starting a company and have no employees. With other retirement plans, adding workers may require some extensive paperwork. With a SIMPLE IRA, the company just sets up an IRA for each employee who joins the plan. A SIMPLE IRA must be offered to all employees who were paid at least $5,000 in any prior two years and who are expected to earn that much in the current year.