The IRS 5304-SIMPLE form is a document used by small businesses to establish a Savings Incentive Match Plan for Employees (SIMPLE) IRA. This plan allows employees and employers to contribute to individual retirement accounts, facilitated by the company. For detailed guidance on completing this form, click the button below.
Navigating the world of retirement savings options can feel like exploring uncharted waters, where each document and form serves as a crucial navigational tool. Among these, the IRS 5304-SIMPLE form stands out for businesses, particularly those small in scale, aiming to offer their employees a structured, tax-advantaged way to save for retirement. This form is part of the SIMPLE (Savings Incentive Match Plan for Employees) IRA framework, designed to make it easier for small businesses to provide retirement benefits. Unlike other retirement plans, which might involve complex administration and high costs, the 5304-SIMPLE allows employees to choose where to hold their SIMPLE IRA accounts, granting them a level of control and flexibility not often found in employer-sponsored plans. Employers are required to contribute to SIMPLE IRAs through matching contributions or non-elective contributions, thereby incentivizing savings and contributing to employees' future financial security. By offering a straightforward path for setting up a retirement savings plan, the IRS 5304-SIMPLE form plays a pivotal role in supporting small businesses and their employees' retirement goals.
Form 5304-SIMPLE
(Rev. March 2012)
Department of the Treasury
Internal Revenue Service
Savings Incentive Match Plan
for Employees of Small Employers (SIMPLE)—Not for Use With a Designated Financial Institution
OMB No. 1545-1502
Do not file
with the Internal Revenue Service
establishes the following SIMPLE
Name of Employer
IRA plan under section 408(p) of the Internal Revenue Code and pursuant to the instructions contained in this form.
Article I—Employee Eligibility Requirements (complete applicable box(es) and blanks—see instructions)
1General Eligibility Requirements. The Employer agrees to permit salary reduction contributions to be made in each calendar year to the SIMPLE IRA established by each employee who meets the following requirements (select either 1a or 1b):
a
Full Eligibility. All employees are eligible.
b
Limited Eligibility. Eligibility is limited to employees who are described in both (i) and (ii) below:
(i)
Current compensation. Employees who are reasonably expected to receive at least $
in compensation
(ii)
(not to exceed $5,000) for the calendar year.
Prior compensation. Employees who have received at least $
in compensation (not to exceed $5,000)
during any
calendar year(s) (insert 0, 1, or 2) preceding the calendar year.
2Excludable Employees.
The Employer elects to exclude employees covered under a collective bargaining agreement for which retirement benefits were the subject of good faith bargaining. Note: This box is deemed checked if the Employer maintains a qualified plan covering only such employees.
Article II—Salary Reduction Agreements (complete the box and blank, if applicable—see instructions)
1Salary Reduction Election. An eligible employee may make an election to have his or her compensation for each pay period reduced. The total amount of the reduction in the employee’s compensation for a calendar year cannot exceed the applicable amount for that year.
2Timing of Salary Reduction Elections
aFor a calendar year, an eligible employee may make or modify a salary reduction election during the 60-day period immediately preceding January 1 of that year. However, for the year in which the employee becomes eligible to make salary reduction contributions, the period during which the employee may make or modify the election is a 60-day period that includes either the date the employee becomes eligible or the day before.
b In addition to the election periods in 2a, eligible employees may make salary reduction elections or modify prior elections,
. If the Employer chooses this option, insert a period or periods (for example, semi-annually, quarterly, monthly, or daily) that will apply uniformly to all eligible employees.
cNo salary reduction election may apply to compensation that an employee received, or had a right to immediately receive, before execution of the salary reduction election.
dAn employee may terminate a salary reduction election at any time during the calendar year. If this box is checked, an employee who terminates a salary reduction election not in accordance with 2b may not resume salary reduction contributions during the calendar year.
Article III—Contributions (complete the blank, if applicable—see instructions)
1Salary Reduction Contributions. The amount by which the employee agrees to reduce his or her compensation will be contributed by the Employer to the employee’s SIMPLE IRA.
2 a Matching Contributions
(i)For each calendar year, the Employer will contribute a matching contribution to each eligible employee’s SIMPLE IRA equal to the employee’s salary reduction contributions up to a limit of 3% of the employee’s compensation for the calendar year.
(ii)The Employer may reduce the 3% limit for the calendar year in (i) only if:
(1) The limit is not reduced below 1%; (2) The limit is not reduced for more than 2 calendar years during the 5-year period ending with the calendar year the reduction is effective; and (3) Each employee is notified of the reduced limit within a reasonable period of time before the employees’ 60-day election period for the calendar year (described in Article II, item 2a).
bNonelective Contributions
(i)For any calendar year, instead of making matching contributions, the Employer may make nonelective contributions equal to 2% of
compensation for the calendar year to the SIMPLE IRA of each eligible employee who has at least $, (not more
than $5,000) in compensation for the calendar year. No more than $250,000* in compensation can be taken into account in determining the nonelective contribution for each eligible employee.
(ii)For any calendar year, the Employer may make 2% nonelective contributions instead of matching contributions only if:
(1)Each eligible employee is notified that a 2% nonelective contribution will be made instead of a matching contribution; and
(2)This notification is provided within a reasonable period of time before the employees’ 60-day election period for the calendar year (described in Article II, item 2a).
3Time and Manner of Contributions
aThe Employer will make the salary reduction contributions (described in 1 above) for each eligible employee to the SIMPLE IRA established at the financial institution selected by that employee no later than 30 days after the end of the month in which the money is withheld from the employee’s pay. See instructions.
bThe Employer will make the matching or nonelective contributions (described in 2a and 2b above) for each eligible employee to the SIMPLE IRA established at the financial institution selected by that employee no later than the due date for filing the Employer’s tax return, including extensions, for the taxable year that includes the last day of the calendar year for which the contributions are made.
* This is the amount for 2012. For later years, the limit may be increased for cost-of-living adjustments. The IRS announces the increase, if any, in a news release, in the Internal Revenue Bulletin, and on the IRS’s internet website at IRS.gov.
For Paperwork Reduction Act Notice, see the instructions.
Cat. No. 23377W
Form 5304-SIMPLE (Rev. 3-2012)
Page 2
Article IV—Other Requirements and Provisions
1Contributions in General. The Employer will make no contributions to the SIMPLE IRAs other than salary reduction contributions (described in Article III, item 1) and matching or nonelective contributions (described in Article III, items 2a and 2b).
2Vesting Requirements. All contributions made under this SIMPLE IRA plan are fully vested and nonforfeitable.
3No Withdrawal Restrictions. The Employer may not require the employee to retain any portion of the contributions in his or her SIMPLE IRA or otherwise impose any withdrawal restrictions.
4Selection of IRA Trustee. The Employer must permit each eligible employee to select the financial institution that will serve as the trustee, custodian, or issuer of the SIMPLE IRA to which the Employer will make all contributions on behalf of that employee.
5Amendments To This SIMPLE IRA Plan. This SIMPLE IRA plan may not be amended except to modify the entries inserted in the blanks or boxes provided in Articles I, II, III, VI, and VII.
6Effects Of Withdrawals and Rollovers
aAn amount withdrawn from the SIMPLE IRA is generally includible in gross income. However, a SIMPLE IRA balance may be rolled over or transferred on a tax-free basis to another IRA designed solely to hold funds under a SIMPLE IRA plan. In addition, an individual may roll over or transfer his or her SIMPLE IRA balance to any IRA or eligible retirement plan after a 2-year period has expired since the individual first participated in any SIMPLE IRA plan of the Employer. Any rollover or transfer must comply with the requirements under section 408.
bIf an individual withdraws an amount from a SIMPLE IRA during the 2-year period beginning when the individual first participated in any SIMPLE IRA plan of the Employer and the amount is subject to the additional tax on early distributions under section 72(t), this additional tax is increased from 10% to 25%.
Article V—Definitions
1Compensation
aGeneral Definition of Compensation. Compensation means the sum of the wages, tips, and other compensation from the Employer subject to federal income tax withholding (as described in section 6051(a)(3)), the amounts paid for domestic service in a private home, local college club, or local chapter of a college fraternity or sorority, and the employee’s salary reduction contributions made under this plan, and, if applicable, elective deferrals under a section 401(k) plan, a SARSEP, or a section 403(b) annuity contract and compensation deferred under a section 457 plan required to be reported by the Employer on Form W-2 (as described in section 6051(a)(8)).
bCompensation for Self-Employed Individuals. For self-employed individuals, compensation means the net earnings from self-employment determined under section 1402(a), without regard to section 1402(c)(6), prior to subtracting any contributions made pursuant to this plan on behalf of the individual.
2Employee. Employee means a common-law employee of the Employer. The term employee also includes a self-employed individual and a leased employee described in section 414(n) but does not include a nonresident alien who received no earned income from the Employer that constitutes income from sources within the United States.
3Eligible Employee. An eligible employee means an employee who satisfies the conditions in Article I, item 1 and is not excluded under Article I, item 2.
4SIMPLE IRA. A SIMPLE IRA is an individual retirement account described in section 408(a), or an individual retirement annuity described in section 408(b), to which the only contributions that can be made are contributions under a SIMPLE IRA plan and rollovers or transfers from another SIMPLE IRA.
Article VI—Procedures for Withdrawals (The Employer will provide each employee with the procedures for withdrawals of contributions received by the financial institution selected by that employee, and that financial institution’s name and address (by attaching that information or inserting it in the space below) unless: (1) that financial institution’s procedures
are unavailable, or (2) that financial institution provides the procedures directly to the employee. See Employee Notification in the instructions.)
Article VII—Effective Date
This SIMPLE IRA plan is effective
. See
instructions.
*
By:
Signature
Date
Address of Employer
Name and title
Page 3
Model Notification to Eligible Employees
I.Opportunity to Participate in the SIMPLE IRA Plan
You are eligible to make salary reduction contributions to theSIMPLE IRA
plan. This notice and the attached summary description provide you with information that you should consider before you decide whether to start, continue, or change your salary reduction agreement.
II.Employer Contribution Election
For the
calendar year, the Employer elects to contribute to your SIMPLE IRA (employer must select either (1), (2), or (3)):
(1)
A matching contribution equal to your salary reduction contributions up to a limit of 3% of your compensation for the year;
(2)
A matching contribution equal to your salary reduction contributions up to a limit of
% (employer must insert a
number from 1 to 3 and is subject to certain restrictions) of your compensation for the
year; or
(3)
A nonelective contribution equal to 2% of your compensation for the year (limited to compensation of $250,000*) if you are an
employee who makes at least $
(employer must insert an amount that is $5,000 or less) in compensation for
the year.
III.Administrative Procedures
To start or change your salary reduction contributions, you must complete the salary reduction agreement and return it to
(employer should designate a place or
individual by
(employer should insert a date that is not less than 60
days after notice is given).
IV. Employee Selection of Financial Institution
You must select the financial institution that will serve as the trustee, custodian, or issuer of your SIMPLE IRA and notify your Employer of your selection.
Model Salary Reduction Agreement
I.Salary Reduction Election
Subject to the requirements of the SIMPLE IRA plan of
(name of
employer) I authorize
% or $
(which equals
% of my current rate of pay) to be withheld from
my pay for each pay period and contributed to my SIMPLE IRA as a salary reduction contribution.
II.Maximum Salary Reduction
I understand that the total amount of my salary reduction contributions in any calendar year cannot exceed the applicable amount for that year. See instructions.
III.Date Salary Reduction Begins
I understand that my salary reduction contributions will start as soon as permitted under the SIMPLE IRA plan and as soon as
administratively feasible or, if later,. (Fill in the date you want the salary reduction contributions to begin. The date must be after you sign this agreement.)
I select the following financial institution to serve as the trustee, custodian, or issuer of my SIMPLE IRA.
Name of financial institution
Address of financial institution
SIMPLE IRA account name and number
I understand that I must establish a SIMPLE IRA to receive any contributions made on my behalf under this SIMPLE IRA plan. If the information regarding my SIMPLE IRA is incomplete when I first submit my salary reduction agreement, I realize that it must be completed by the date contributions must be made under the SIMPLE IRA plan. If I fail to update my agreement to provide this information by that date, I understand that my Employer may select a financial institution for my SIMPLE IRA.
V.Duration of Election
This salary reduction agreement replaces any earlier agreement and will remain in effect as long as I remain an eligible employee under the SIMPLE IRA plan or until I provide my Employer with a request to end my salary reduction contributions or provide a new salary reduction agreement as permitted under this SIMPLE IRA plan.
Signature of employee
*This is the amount for 2012. For later years, the limit may be increased for cost-of-living adjustments. The IRS announces the increase, if any, in a news release, in the Internal Revenue Bulletin, and on the IRS website at IRS.gov.
Page 4
General Instructions
Section references are to the Internal Revenue Code unless otherwise noted.
Purpose of Form
Form 5304-SIMPLE is a model Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) plan document that an employer may use to establish a SIMPLE IRA plan described in section 408(p), under which each eligible employee is permitted to select the financial institution for his or her
SIMPLE IRA.
These instructions are designed to assist in the establishment and administration of the SIMPLE IRA plan. They are not intended to supersede any provision in the SIMPLE IRA plan.
Do not file Form 5304-SIMPLE with the IRS. Instead, keep it with your records.
For more information, see Pub. 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans), and Pub. 590, Individual Retirement Arrangements (IRAs).
Note. If you used the March 2002, August 2005, or September 2008 version of Form 5304-SIMPLE to establish a model Savings Incentive Match Plan, you are not required to use this version of the form.
Which Employers May
Establish and Maintain a
SIMPLE IRA Plan?
To establish and maintain a SIMPLE IRA plan, you must meet both of the following requirements:
1.Last calendar year, you had no more than 100 employees (including self-employed individuals) who earned $5,000 or more in compensation from you during the year. If you have a SIMPLE IRA plan but later exceed this 100-employee limit, you will be treated as meeting the limit for the 2 years following the calendar year in which you last satisfied the limit.
2.You do not maintain during any part of the calendar year another qualified plan with respect to which contributions are made, or benefits are accrued, for service in the calendar year. For this purpose, a qualified plan (defined in section 219(g)(5)) includes a qualified pension plan, a profit-sharing plan, a stock bonus plan, a qualified annuity plan, a tax-sheltered annuity plan, and a simplified employee pension (SEP) plan. A qualified plan that only covers employees covered under a collective bargaining agreement for which retirement benefits were the subject of good faith bargaining is disregarded if these employees are excluded from
participating in the SIMPLE IRA plan. If the failure to continue to satisfy the
100-employee limit or the one-plan rule described in 1 and 2 above is due to an acquisition or similar transaction involving your business, special rules apply. Consult your tax advisor to find out if you can still maintain the plan after the transaction.
Certain related employers (trades or businesses under common control) must be treated as a single employer for purposes of the SIMPLE IRA requirements. These are: (1) a controlled group of corporations under section 414(b); (2) a partnership or sole proprietorship under common control under section 414(c); or (3) an affiliated service group under section 414(m). In addition, if you have leased employees required to be treated as your own employees under the rules of section 414(n), then you must count all such leased employees for the requirements listed above.
What Is a SIMPLE IRA Plan?
A SIMPLE IRA plan is a written arrangement that provides you and your employees with an easy way to make contributions to provide retirement income for your employees. Under a SIMPLE IRA plan, employees may choose whether to make salary reduction contributions to the SIMPLE IRA plan rather than receiving these amounts as part of their regular compensation. In addition, you will contribute matching or nonelective contributions on behalf of eligible employees (see Employee Eligibility Requirements below and Contributions later). All contributions under this plan will be deposited into a SIMPLE individual retirement account or annuity established for each eligible employee with the financial institution selected by him or her.
When To Use Form 5304-SIMPLE
A SIMPLE IRA plan may be established by using this Model Form or any other document that satisfies the statutory requirements.
Do not use Form 5304-SIMPLE if:
1.You want to require that all SIMPLE IRA plan contributions initially go to a financial institution designated by you. That is, you do not want to permit each of your eligible employees to choose a financial institution that will initially receive contributions. Instead, use Form 5305-SIMPLE, Savings Incentive Match Plan for Employees of Small Employers (SIMPLE)—for Use With a Designated Financial Institution;
2.You want employees who are nonresident aliens receiving no earned income from you that is income from sources within the United States to be eligible under this plan; or
3.You want to establish a SIMPLE 401(k) plan.
Completing Form 5304-SIMPLE
Pages 1 and 2 of Form 5304-SIMPLE contain the operative provisions of your SIMPLE IRA plan. This SIMPLE IRA plan is considered adopted when you have completed all applicable boxes and blanks and it has been executed by you.
The SIMPLE IRA plan is a legal document with important tax consequences for you and your employees. You may want to consult with your attorney or tax advisor before adopting this plan.
Employee Eligibility Requirements (Article I)
Each year for which this SIMPLE IRA plan is effective, you must permit salary reduction contributions to be made by all of your employees who are reasonably expected to receive at least $5,000 in compensation from you during the year, and who received at least $5,000 in compensation from you in any 2 preceding years. However, you can expand the group of employees who are eligible to participate in the SIMPLE IRA plan by completing the options provided in Article I, items 1a and 1b. To choose full eligibility, check the box in Article I, item 1a. Alternatively, to choose limited eligibility, check the box in Article I, item 1b, and then insert “$5,000” or a lower compensation amount (including zero) and “2” or a lower number of years of service in the blanks in (i) and (ii) of Article I, item 1b.
In addition, you can exclude from participation those employees covered under a collective bargaining agreement for which retirement benefits were the subject of good faith bargaining. You may do this by checking the box in Article I, item 2. Under certain circumstances, these employees must be excluded. See Which Employers May Establish and Maintain a SIMPLE IRA Plan? above.
Salary Reduction Agreements (Article II)
As indicated in Article II, item 1, a salary reduction agreement permits an eligible employee to make a salary reduction election to have his or her compensation for each pay period reduced by a percentage (expressed as a percentage or dollar amount). The total amount of
Page 5
the reduction in the employee’s compensation cannot exceed the applicable amount for any calendar year. The applicable amount is $11,500 for 2012. After 2012, the $11,500 amount may be increased for cost-of-living adjustments. In the case of an eligible employee who is 50 or older by the end of the calendar year, the above limitation is increased by $2,500 for 2012. After 2012, the $2,500 amount may be increased for cost-of-living adjustments.
Timing of Salary Reduction Elections
For any calendar year, an eligible employee may make or modify a salary reduction election during the 60-day period immediately preceding January 1 of that year. However, for the year in which the employee becomes eligible to make salary reduction contributions, the period during which the employee may make or modify the election is a 60-day period that includes either the date the employee becomes eligible or the day before.
You can extend the 60-day election periods to provide additional opportunities for eligible employees to make or modify salary reduction elections using the blank in Article II, item 2b. For example, you can provide that eligible employees may make new salary reduction elections or modify prior elections for any calendar quarter during the 30 days before that quarter.
You may use the Model Salary Reduction Agreement on page 3 to enable eligible employees to make or modify salary reduction elections.
Employees must be permitted to terminate their salary reduction elections at any time. They may resume salary reduction contributions for the year if permitted under Article II, item 2b. However, by checking the box in Article II, item 2d, you may prohibit an employee who terminates a salary reduction election outside the normal election cycle from resuming salary reduction contributions during the remainder of the calendar year.
Contributions (Article III)
Only contributions described below may be made to this SIMPLE IRA plan. No additional contributions may be made.
Salary Reduction Contributions
As indicated in Article III, item 1, salary reduction contributions consist of the amount by which the employee agrees to reduce his or her compensation. You must contribute the salary reduction contributions to the financial institution selected by each eligible employee.
Matching Contributions
In general, you must contribute a matching contribution to each eligible employee’s SIMPLE IRA equal to the employee’s salary reduction contributions. This matching contribution cannot exceed 3% of the employee’s compensation. See Definition of Compensation, below.
You may reduce this 3% limit to a lower percentage, but not lower than 1%. You cannot lower the 3% limit for more than 2 calendar years out of the 5-year period ending with the calendar year the reduction is effective.
Note. If any year in the 5-year period described above is a year before you first established any SIMPLE IRA plan, you will be treated as making a 3% matching contribution for that year for purposes of determining when you may reduce the employer matching contribution.
To elect this option, you must notify the employees of the reduced limit within a reasonable period of time before the applicable 60-day election periods for the year. See Timing of Salary Reduction Elections above.
Nonelective Contributions
Instead of making a matching contribution, you may, for any year, make a nonelective contribution equal to 2% of compensation for each eligible employee who has at least $5,000 in compensation for the year.
Nonelective contributions may not be based on more than $250,000* of compensation.
To elect to make nonelective contributions, you must notify employees within a reasonable period of time before the applicable 60-day election periods for such year. See Timing of Salary Reduction Elections above.
Note. Insert “$5,000” in Article III, item 2b(i) to impose the $5,000 compensation requirement. You may expand the group of employees who are eligible for nonelective contributions by inserting a compensation amount lower than $5,000.
Effective Date (Article VII)
Insert in Article VII the date you want the provisions of the SIMPLE IRA plan to become effective. You must insert January 1 of the applicable year unless this is the first year for which you are adopting any SIMPLE IRA plan. If this is the first year for which you are adopting a SIMPLE IRA plan, you may insert any date between January 1 and October 1, inclusive of the applicable year.
Additional Information
Timing of Salary Reduction Contributions
The employer must make the salary reduction contributions to the financial institution selected by each eligible employee for his or her SIMPLE IRA no later than the 30th day of the month following the month in which the amounts would otherwise have been payable to the employee in cash.
The Department of Labor has indicated that most SIMPLE IRA plans are also subject to Title I of the Employee Retirement Income Security Act of 1974 (ERISA). Under Department of Labor regulations at 29 CFR 2510.3-102, salary reduction contributions must be made to each participant’s SIMPLE IRA as of the earliest date on which those contributions can reasonably be segregated from the employer’s general assets, but in no event later than the 30-day deadline described previously.
Definition of Compensation
“Compensation” means the amount described in section 6051(a)(3) (wages, tips, and other compensation from the employer subject to federal income tax withholding under section 3401(a)), and amounts paid for domestic service in a private home, local college club, or local chapter of a college fraternity or sorority. Usually, this is the amount shown in box 1 of Form W-2, Wage and Tax Statement. For further information, see Pub. 15, (Circular E), Employer’s Tax Guide. Compensation also includes the salary reduction contributions made under this plan, and, if applicable, compensation deferred under a section 457 plan. In determining an employee’s compensation for prior years, the employee’s elective deferrals under a section 401(k) plan, a SARSEP, or a section 403(b) annuity contract are also included in the employee’s compensation.
For self-employed individuals, compensation means the net earnings from self-employment determined under section 1402(a), without regard to section 1402(c)(6), prior to subtracting any contributions made pursuant to this SIMPLE IRA plan on behalf of the individual.
Employee Notification
You must notify each eligible employee prior to the employee’s 60-day election period described above that he or she can make or change salary reduction elections and select the financial institution that will serve as the trustee, custodian, or
*This is the amount for 2012. For later years, the limit may be increased for cost-of-living adjustments. The IRS announces the increase, if any, in a news release, in the Internal Revenue Bulletin, and on the IRS’s website at IRS.gov.
Page 6
issuer of the employee’s SIMPLE IRA. In this notification, you must indicate whether you will provide:
1.A matching contribution equal to your employees’ salary reduction contributions up to a limit of 3% of their compensation;
2.A matching contribution equal to your employees’ salary reduction contributions subject to a percentage limit that is between 1 and 3% of their compensation; or
3.A nonelective contribution equal to 2% of your employees’ compensation.
You can use the Model Notification to Eligible Employees earlier to satisfy these employee notification requirements for this SIMPLE IRA plan. A Summary Description must also be provided to eligible employees at this time. This summary description requirement may be satisfied by providing a completed copy of pages 1 and 2 of Form 5304-SIMPLE (including the information described in
Article VI—Procedures for Withdrawals).
If you fail to provide the employee notification (including the summary description) described above, you will be liable for a penalty of $50 per day until the notification is provided. If you can show that the failure was due to reasonable cause, the penalty will not be imposed.
If the financial institution’s name, address, or withdrawal procedures are not available at the time the employee must be given the summary description, you must provide the summary description without this information. In that case, you will have reasonable cause for not including this information in the summary description, but only if you ensure that it is provided to the employee as soon as administratively feasible.
Reporting Requirements
You are not required to file any annual information returns for your SIMPLE IRA plan, such as Form 5500, Annual Return/Report of Employee Benefit Plan, or Form 5500-EZ, Annual Return of One-Participant (Owners and Their Spouses) Retirement Plan. However, you must report to the IRS which eligible employees are active participants in the SIMPLE IRA plan and the amount of your employees’ salary reduction contributions to the SIMPLE IRA plan on Form W-2. These contributions are subject to social security, Medicare, railroad retirement, and federal unemployment tax.
Deducting Contributions
Contributions to this SIMPLE IRA plan are deductible in your tax year containing the end of the calendar year for which the contributions are made.
Contributions will be treated as made for a particular tax year if they are made for that year and are made by the due date (including extensions) of your income tax return for that year.
Summary Description
Each year the SIMPLE IRA plan is in effect, the financial institution for the SIMPLE IRA of each eligible employee must provide the employer the information described in section 408(l)(2)(B). This requirement may be satisfied by providing the employer a current copy of Form 5304-SIMPLE (including instructions) together with the financial institution’s procedures for withdrawals from SIMPLE IRAs established at that financial institution, including the financial institution’s name and address. The summary description must be received by the employer in sufficient time to comply with the Employee Notification requirements earlier.
There is a penalty of $50 per day imposed on the financial institution for each failure to provide the summary description described above. However, if the failure was due to reasonable cause, the penalty will not be imposed.
Paperwork Reduction Act Notice. You are not required to provide the information requested on a form that is subject to the Paperwork Reduction Act unless the form displays a valid OMB control number. Books or records relating to a form or its instructions must be retained as long as their contents may become material in the administration of any Internal Revenue law. Generally, tax returns and return information are confidential, as required by section 6103.
The time needed to complete this form will vary depending on individual circumstances. The estimated average time is:
Recordkeeping . .
.
3 hr., 38 min.
Learning about the
law or the form . .
2 hr., 26 min.
Preparing the form
. . 47 min.
If you have comments concerning the accuracy of these time estimates or suggestions for making this form simpler, we would be happy to hear from you. You can write to the Internal Revenue Service, Tax Products Coordinating Committee, SE:W:CAR:MP:T:M:S, 1111 Constitution Ave. NW, IR-6526, Washington, DC 20224. Do not send this form to this address. Instead, keep it with your records.
Filling out the IRS 5304-SIMPLE form is an important step for small businesses that intend to offer a SIMPLE (Savings Incentive Match Plan for Employees) IRA for their employees. This form establishes a SIMPLE IRA plan, allowing employees and employers to contribute to individual retirement accounts according to federal tax guidelines. Simplifying the complexities of retirement plan options, the 5304-SIMPLE form enables employers to provide a straightforward and beneficial retirement savings plan. The process requires attention to detail to ensure that the information provided is accurate and comprehensible. Below are the detailed steps necessary to complete the IRS 5304-SIMPLE form properly.
After completing the IRS 5304-SIMPLE form, the next steps involve distributing information to eligible employees about their rights and obligations under the SIMPLE IRA plan, setting up accounts for each participating employee, and beginning contributions according to the plan's specifications. It's important to maintain accurate and up-to-date records of all contributions and to monitor for any changes in IRS guidelines or contribution limits to ensure ongoing compliance. Proactively managing the SIMPLE IRA plan will contribute significantly to its success as a retirement benefit for employees.
What is the IRS 5304-SIMPLE form used for?
The IRS 5304-SIMPLE form is used by small employers to set up a Savings Incentive Match Plan for Employees (SIMPLE) IRA. It allows employees to contribute a part of their salary to the plan and requires employers to make matching or non-elective contributions. This form is for employers who choose to allow employees to select their own financial institution for their SIMPLE IRA accounts.
Can any business set up a 5304-SIMPLE plan?
No, not all businesses can set up a 5304-SIMPLE plan. This option is available only to small businesses that have 100 or fewer employees who received $5,000 or more in compensation from the employer in the previous calendar year. Additionally, the business must not maintain any other employer-sponsored retirement plan.
What are the contribution limits for a SIMPLE IRA under the 5304-SIMPLE?
For the current year, employees can contribute up to $13,500 to a SIMPLE IRA plan, with an additional catch-up contribution of $3,000 allowed for employees aged 50 or over. These limits are subject to adjustments by the IRS to reflect cost-of-living changes.
How does an employer make contributions to the 5304-SIMPLE plan?
An employer can choose to make either matching contributions, which match the employees' contributions dollar for dollar, up to 3% of the employee's compensation, or non-elective contributions, where the employer contributes 2% of each eligible employee's compensation, regardless of whether the employee chooses to make their own contributions.
Are there deadlines for setting up a 5304-SIMPLE plan?
Yes, a 5304-SIMPLE plan must be set up between January 1 and October 1 of the year it comes into effect. However, for a new business established after October 1, the plan can be set up as soon as administratively feasible. Any changes to the plan must also adhere to specific deadlines, usually by November 2nd to be effective for the following year.
How are distributions from a 5304-SIMPLE IRA taxed?
Distributions from a 5304-SIMPLE IRA are generally taxable as income in the year they are received. However, if the distribution is taken before the age of 59 ½, it may also be subject to a 10% early withdrawal penalty, with certain exceptions for specific circumstances like disability, qualified educational expenses, or a first-time home purchase.
Can an existing retirement plan be converted to a 5304-SIMPLE plan?
Existing retirement plans cannot be directly converted to a 5304-SIMPLE plan. However, employers can terminate their current plan at the end of a calendar year and establish a 5304-SIMPLE plan to begin in the following year. It's important for employers to consult with a financial advisor or legal expert to ensure this process is handled correctly and in compliance with IRS rules.
Filling out tax forms can often be daunting, and the IRS 5304-SIMPLE form is no exception. One common mistake is not accurately identifying the employer and employee contributions. People sometimes mix these up or enter incorrect amounts, which can lead to discrepancies and potential penalties. The plan involves two types of contributions, and it's crucial to distinguish between them accurately on the form.
Another error is failing to choose an appropriate financial institution. The IRS 5304-SIMPLE allows for employees to select the financial institution where their contributions are sent, a feature that distinguishes it from its counterpart, the 5305-SIMPLE. Some individuals overlook this detail and leave the choice blank, resulting in funds not being deposited in a timely manner or, in some cases, at all.
Incorrect or incomplete employee information is also a frequent issue. Each participant’s social security number, address, and full name must be clearly and accurately documented. Errors in this area can cause significant confusion and delay the processing of contributions, leading to unhappy employees and possible reporting issues for the employer.
Often, individuals fail to update the form when necessary. The 5304-SIMPLE form should be updated to reflect any significant changes such as new employees, departing employees, or changes in the business structure. Ignoring or delaying these updates can lead to compliance issues and complications in the employee’s retirement savings plans.
Some people mistakenly believe that filling out this form once is enough for the lifetime of their business. However, annual review and re-certification might be necessary to ensure the plan complies with current laws and regulations. This oversight can leave an employer's plan out of compliance without them even realizing it.
Inadequate record keeping is another pitfall. Though the form itself is straightforward, the IRS requires that all records related to the SIMPLE IRA contributions be kept for a certain period. These records serve as evidence of compliance and are essential in the case of an audit. Without them, proving compliance becomes significantly more challenging.
Not giving the form the attention it deserves is a broader mistake that encompasses many of these specific issues. Rushing through filling it out or not reviewing instructions carefully can lead to errors. Each part of the form has its purpose and needs to be completed with attention to detail and an understanding of its implications.
Last but not least, some people submit the form without ensuring all necessary signatures are in place. The signature of the employer (and if applicable, the financial institution) is critical to validate the document. Missing signatures can render the effort of filling out the form moot, as it won’t be processed without them.
Understanding and avoiding these common mistakes can make the process of completing the IRS 5304-SIMPLE smoother and help ensure that employees can benefit from this savings option without unnecessary delays or complications.
When managing retirement plans, businesses and their employees often encounter several forms along with the IRS 5304-SIMPLE form. This variety of documents ensures compliance with federal regulations and facilitate the smooth operation of savings incentive match plan for employees (SIMPLE) IRA accounts. These forms are pivotal for businesses to provide retirement benefits and for employees to make informed decisions about their investments.
Together, these documents form a comprehensive framework for the administration of SIMPLE IRA plans. Employers and employees should familiarize themselves with these forms to ensure they meet all legal requirements and make the most of their retirement savings efforts. Understanding and correctly utilizing these forms can enhance the efficiency of retirement plan management and contribute to a secure financial future.
The IRS 5304-SIMPLE form shares similarities with the 5305-SIMPLE form. Both are devised for small businesses or tax-exempt organizations to set up Savings Incentive Match Plan for Employees (SIMPLE) IRA accounts for their employees. Whereas the 5304-SIMPLE allows each employee to choose their financial institution, the 5305-SIMPLE mandates that all contributions be deposited at a single financial institution selected by the employer.
Similar to the Form 401(k) Summary Plan Description, the 5304-SIMPLE form provides essential information about the retirement plan to participants. It outlines the plan's benefits, rights, and features. Both documents are crucial for transparency, allowing employees to understand their retirement plans better, though they serve different types of retirement plans.
Form 5500, the Annual Return/Report of Employee Benefit Plan, is required for retirement plans to ensure regulatory compliance and report their financial condition, investments, and operations. While the 5304-SIMPLE form sets up a SIMPLE IRA plan, both the 5304-SIMPLE and Form 5500 are integral to the administrative lifecycle of employee retirement plans, ensuring government standards are met.
The IRS 5304-SIMPLE form and the SEP Plan Document (Form 5305-SEP) are used by employers to establish retirement plans, but for different types of plans. The 5304-SIMPLE is for SIMPLE IRAs, specific to smaller employers, and the 5305-SEP establishes a Simplified Employee Pension (SEP) plan. Both documents facilitate retirement savings but cater to different employer needs and compliance requirements.
Form W-4, Employee’s Withholding Certificate, and the 5304-SIMPLE form, though serving very different purposes, are both essential at the onset of employment. While the Form W-4 determines the amount of taxes to be withheld from an employee’s paycheck, the 5304-SIMPLE sets up retirement savings. Each plays a critical role in employee financial planning and obligations.
Similar to the Adoption Agreement for a Simplified Employee Pension (SEP), the 5304-SIMPLE form is an agreement form that lays out the terms and conditions of a retirement plan. Both documents allow employers to provide retirement benefits to their employees, though the specific features and requirements of the plans differ.
The IRS form 8938, Statement of Specified Foreign Financial Assets, and the 5304-SIMPLE form both involve financial disclosure, but for different contexts. Form 8938 is for individuals to report foreign financial assets to the IRS, ensuring compliance with the Foreign Account Tax Compliance Act (FATCA), whereas the 5304-SIMPLE enables employers to offer retirement plans.
The Form 1099-R, Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., like the 5304-SIMPLE form, is associated with retirement accounts. While the 1099-R reports distributions taken from these accounts during the tax year, the 5304-SIMPLE is about the plan's establishment and contribution aspects.
Lastly, the IRS Form 944, Employer’s Annual Federal Tax Return, is akin to the 5304-SIMPLE form in that both are pertinent to employer responsibilities for employee financial welfare. Form 944 is used by smaller employers to report federal income tax and FICA taxes withheld from employees, contrasting with the 5304-SIMPLE's focus on retirement savings.
Do carefully read all instructions provided with the IRS 5304-SIMPLE form before beginning to fill it out. Understanding the requirements is crucial for accurate completion.
Don't guess on any answers. If you're unsure about how to respond to a specific item, seek clarification from a tax professional or the IRS directly to avoid possible errors.
Do ensure that all information provided is current and accurate, particularly personal details and financial figures, to prevent processing delays or issues with your SIMPLE IRA plan.
Don't leave any required fields blank. If a question does not apply, consider marking it as "N/A" (not applicable) instead of leaving it empty, unless the instructions specify otherwise.
Do use black ink and legible handwriting if filling out the form manually. This aids in the clear scanning and processing of the document by IRS systems.
Don't use corrections fluid or tape. If you make an error, it's advisable to start with a new form to maintain the form's readability and integrity.
Do check the IRS website for the most updated version of the form. Tax laws and form requirements may change, and using the most recent form ensures compliance with current rules.
Don't forget to double-check all entries for accuracy before submitting the form. A second review can help catch and correct any mistakes that were initially overlooked.
Do retain a copy of the completed form for your records. Keeping a record is important for future reference and for verification purposes in the event of any disputes or audits.
When it comes to retirement savings plans, the IRS 5304-SIMPLE form is a crucial document for small businesses opting to offer Savings Incentive Match Plan for Employees (SIMPLE) IRAs. However, several misconceptions can lead to confusion. Let's clarify ten common misunderstandings.
Only large businesses can set up a SIMPLE IRA plan: Contrary to this belief, the SIMPLE IRA plan is specifically designed for small businesses with 100 or fewer employees. It offers an easier and less costly retirement plan option.
Setting up a SIMPLE IRA automatically involves high costs: The reality is that a SIMPLE IRA is one of the least expensive retirement plan options available for small businesses, often involving minimal setup and operating costs compared to other retirement plans.
Employees can't contribute if they're new to the company: Actually, employees can contribute to a SIMPLE IRA plan as soon as they earn at least $5,000 during any prior two years and are reasonably expected to earn at least $5,000 in the current year.
Employers must match employee contributions at a fixed rate: Employers have two options: they can either match employee contributions dollar for dollar up to 3% of the employee's compensation (not necessarily the same percentage every year) or contribute 2% of each eligible employee's compensation, regardless of employee contributions.
Loans are allowed from SIMPLE IRA plans: This is incorrect. Loans from SIMPLE IRAs are not permitted, which differentiates them from some other types of retirement plans where loans might be an option.
The IRS 5304-SIMPLE form is for employee use: In fact, the IRS 5304-SIMPLE form is used by an employer to establish a SIMPLE IRA plan. It is not a form used by employees.
Contribution limits are lower than other retirement plans: Actually, SIMPLE IRA plans have generous contribution limits, allowing employees to set aside substantial savings for retirement, often more than traditional IRAs but less than some 401(k) plans.
No early withdrawal penalties apply: Early withdrawals from SIMPLE IRAs generally incur a penalty. If the withdrawal occurs within the first two years of participation, a hefty 25% early withdrawal penalty applies, higher than the typical 10% penalty for early withdrawals from other retirement accounts.
Employers have no deadline for setting up a SIMPLE IRA plan: There is indeed a deadline. Employers need to set up the SIMPLE IRA plan by October 1 of the year it will become effective. This deadline does not apply if the business is established after October 1, in which case the plan should be set up as soon as administratively feasible.
The plan requires extensive annual reporting to the IRS: Unlike some other retirement plans, SIMPLE IRA plans do not require annual filing with the IRS, making them a less burdensome option for small businesses in terms of paperwork and compliance.
Understanding these aspects of the IRS 5304-SIMPLE form and the SIMPLE IRA plan it establishes can help small businesses make informed decisions about retirement savings options for their employees.
The IRS 5304-SIMPLE form is crucial for setting up a Savings Incentive Match Plan for Employees (SIMPLE) IRA plan, allowing employers to make direct contributions to their employees' retirement savings. It is essential for small business owners and their employees to understand the implications and mechanics of this form to ensure they are maximizing their retirement benefits while adhering to IRS regulations.
Employers and employees engaged with the 5304-SIMPLE should regularly consult IRS guidelines and possibly a financial advisor to ensure they are making the most of this retirement saving opportunity while staying within legal requirements. Proper attention to detail and adherence to regulations can significantly impact the effectiveness and benefits of the SIMPLE IRA plan for both parties.
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