This form of IRA is available for business owners who employ 100 employees or less. Since you can defer a portion of your salary each year, it’s a great way to reward your employees, much like a Traditional 401(k), but somewhat easier to set up.
- Low Maintenance – This type of IRA is also very simple to handle and the ongoing maintenance is very low. Year-end reports will be easy to understand and finalize during tax time.
- Low Fees – A SIMPLE IRA does not have large fees associated to maintain the account with a broker.
- Salary Deferral – You can defer up to $13,000 in salary each year, or $16,000 if the employee is over 50.
- Small Companies Only – A SIMPLE IRA is only allowed for companies who have 100 employees or less so if you have a business larger than this you’ll have to use a different retirement vehicle.
- Large Withdrawal Penalty – For most retirement accounts if you withdraw money before retirement age, you have to pay a 10 percent early distribution penalty. But with the SIMPLE IRA, you could be hit with a penalty as high as 25 percent of the balance.