Benefits

• It only takes one official plan document to establish a SIMPLE IRA, and small business owners can usually obtain an approved plan from financial institutions that are certified SIMPLE IRA administrators. The Internal Revenue Service (IRS) does not require employers to file an annual financial report for the plan. Moreover, administrative costs associated with operating SIMPLE IRAs are low.
  
  

Significance

• Both employers and employees make SIMPLE IRA contributions. Employers contribute up to 3 percent of employee income annually, and employees can opt to have a portion of each paycheck directed to their SIMPLE IRA accounts. Qualifying contributions are tax deductible, and the accounts are tax-deferred -- meaning that employees do not pay taxes on funds until they take withdrawals.
  
  

Considerations

• SIMPLE IRAs are only available to employers who do not already offer a retirement plan. Moreover, employers do not qualify if they have more than 100 employees who earn more than $5,000 annually.