The IRS 5304-SIMPLE form is a document used by businesses to establish a Savings Incentive Match Plan for Employees (SIMPLE) IRA. This plan allows employees to save for retirement, while employers match their contributions up to a certain percentage. It's a straightforward way for small businesses to provide retirement benefits to their employees.
For small business owners and those navigating the complexities of retirement savings options, understanding the various tools and forms provided by the Internal Revenue Service (IRS) is essential. Among these, the IRS 5304-SIMPLE form plays a crucial role. This document is pivotal for setting up a Savings Incentive Match Plan for Employees (SIMPLE) IRA, which allows both employers and employees to contribute to traditional IRAs set up for employees. It's a beneficial arrangement for businesses with 100 or fewer employees who received at least $5,000 in compensation in the preceding year. The form is detailed, guiding the establishment of the SIMPLE IRA plan, offering a way for all eligible employees to participate, and providing the option for employees to select a financial institution for their contributions. Through its careful completion, small businesses can foster a culture of saving and prepare their workforce for the future, while also adhering to necessary tax laws and regulations. The IRS 5304-SIMPLE form thereby stands as a beacon for small businesses, encapsulating opportunities for growth, savings, and compliance within its provisions.
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.
Completing the IRS 5304-SIMPLE form is straightforward when you follow these detailed steps. This document is crucial for setting up a Savings Incentive Match Plan for Employees by smaller employers. The form is designed to allow each eligible employee to choose their own financial institution for receiving contributions. It's essential to provide accurate information to ensure the smooth processing of your submission. Below, you'll find a step-by-step guide to help you through each part of the form.
After completing the form, review it to confirm all details are correct and accurately reflect the employer's intentions for the SIMPLE IRA plan. The next steps involve distributing the form to eligible employees and setting up the respective SIMPLE IRAs with their chosen financial institutions. It's crucial to adhere to IRS deadlines to ensure compliance and to facilitate a smooth setup process for the employer and employees alike. Proper submission of this form is a vital part of establishing a SIMPLE IRA plan that benefits both the employer and their employees.
What is the IRS 5304-SIMPLE form used for?
The IRS 5304-SIMPLE form is designed for use by small businesses to establish a Savings Incentive Match Plan for Employees (SIMPLE) IRA. This plan enables employees and employers to make contributions to individual retirement accounts set up for employees, providing a simplified way to save for retirement. The form serves as an agreement between the employer and the financial institution where the SIMPLE IRAs are held, detailing the specifics of how the plan will be operated.
Who can use the IRS 5304-SIMPLE form?
Small businesses with 100 or fewer employees who received at least $5,000 in compensation during the preceding calendar year are eligible to use the IRS 5304-SIMPLE form. It is aimed at those businesses that do not currently maintain another employer-sponsored retirement plan.
How does the 5304-SIMPLE differ from the 5305-SIMPLE?
The 5304-SIMPLE allows employees to choose the financial institution for their individual SIMPLE IRA accounts, whereas the 5305-SIMPLE requires all employees’ contributions to be deposited into a single financial institution chosen by the employer. Thus, the choice between the two forms depends on the level of flexibility a business wants to offer its employees regarding where their retirement funds are held.
What are the contribution limits for a SIMPLE IRA plan established with the 5304-SIMPLE?
The contribution limits for a SIMPLE IRA plan are adjusted periodically for inflation. Generally, employees can contribute up to a certain percentage of their compensation, but not more than an annually adjusted limit. Employers are required to either match employee contributions dollar for dollar up to 3% of the employee's compensation, or contribute 2% of every eligible employee's compensation regardless of the employee's contributions. For specific and current limits, it is advised to consult the IRS website or a tax professional.
What are the deadlines for setting up a SIMPLE IRA plan using the 5304-SIMPLE?
To be effective for a given year, a SIMPLE IRA plan must generally be established between January 1 and October 1 of that year. However, if a business is newly established and begins after October 1, the plan can be set up as soon as administratively feasible. Also, a newly adopted plan can be set up any time between January 1 and October 1, even in the first year, the business is in operation.
Can the 5304-SIMPLE form be filed electronically with the IRS?
As of the last update, the IRS does not accept the 5304-SIMPLE form for electronic filing. The form is instead used as a document between the employer, the employee, and the financial institution where the SIMPLE IRA accounts are held. It is not submitted to the IRS but must be kept on file by the employer and made available for IRS inspection upon request.
What are the penalties for not complying with the SIMPLE IRA plan rules as outlined in the 5304-SIMPLE?
Non-compliance with the rules of a SIMPLE IRA plan can lead to penalties, including the plan losing its tax-advantaged status, which could have significant ramifications for both employers and employees. Specific penalties may involve taxes on contributions and earnings, and possible tax penalties for premature withdrawals. Businesses should ensure they understand their obligations under the plan and consult with a tax professional to maintain compliance.
Filling out tax forms can often feel like navigating through a maze, and the IRS 5304-SIMPLE form is no exception. This form allows small employers to set up Savings Incentive Match Plans for Employees (SIMPLE) IRA plans without designating a financial institution for them. However, certain common mistakes can turn this seemingly straightforward process into a complicated ordeal.
One key error occurs when individuals inaccurately report their employer's identification number (EIN). This crucial piece of information is the backbone of your filing, linking your form to your business. When it's incorrect, the IRS might not be able to process the form, leading to delays or even penalties. Always double-check your EIN against official documents to ensure accuracy.
Another pitfall is misunderstanding the eligibility criteria, resulting in the incorrect inclusion or exclusion of employees. The rules around who can or cannot participate in a SIMPLE IRA plan are specific, including factors like how much an employee has been paid and the length of their service. Misinterpreting these rules can lead to compliance issues, and potentially, disqualification of the plan.
Not specifying the chosen financial institution, despite the form’s flexibility, is also a common blunder. While the 5304-SIMPLE form allows employees to choose their own financial institutions, a failure to provide any direction or options can lead to confusion and delays. Employers should provide clear instructions to prevent these issues, even though they don't have to select a single institution for all participants.
A frequently overlooked detail is the failure to sign and date the form. Without the appropriate signature and date, the form is considered incomplete and will be returned. This mistake can be easily avoided by thoroughly checking the document before submission, ensuring that all necessary sections have been properly filled out.
Last but not least, employers often miss the deadline for setting up a SIMPLE IRA plan. The plan must be established by October 1st of the year in which you begin to operate it. Late setup can disqualify your plan for the year, affecting both employers and employees. Keeping an eye on this deadline is crucial for the smooth implementation of a SIMPLE IRA plan.
The IRS 5304-SIMPLE form is a crucial document for small businesses that wish to establish a Savings Incentive Match Plan for Employees (SIMPLE). This plan allows employees and employers to contribute to traditional IRAs set up for employees, facilitating a simplified method of savings for retirement. While this form is a significant first step, several other forms and documents often accompany it in the toolbox of small business retirement planning. Understanding these documents is essential for ensuring compliance and maximizing the benefits of the SIMPLE plan.
Collectively, these documents form a comprehensive framework for establishing, operating, and participating in a SIMPLE IRA plan. Proper use and understanding of each can help ensure that small businesses and their employees gain the full benefits of this retirement savings program while remaining in compliance with tax laws and regulations. As retirement planning involves many details and regulations, it's always recommended to consult with a professional to ensure that all requirements are met and opportunities maximized.
The IRS 5304-SIMPLE form bears resemblance to the IRS 5305-SIMPLE form, primarily because both are designed for the setup of SIMPLE IRA plans for employees. While the 5304-SIMPLE allows participants to choose their financial institution for the IRA, the 5305-SIMPLE requires that the employer designate the financial institution. This differentiation caters to varying preferences between employer control and employee freedom in selecting an investment platform.
Another document similar to the IRS 5304-SIMPLE is the IRS Form 401(k) Plan Document. Both documents serve the purpose of establishing retirement savings plans for employees. However, the 401(k) Plan Document is utilized to create a 401(k) plan, offering different contribution limits and rules regarding loans and withdrawals, contrasting with the SIMPLE IRA’s simpler structure and lower administrative burden for small businesses.
The IRS Form 8832 is connected to the IRS 5304-SIMPLE through its role in business tax classifications which can affect eligibility and setup of SIMPLE IRA plans. Form 8832 allows entities to choose their federal tax classification, impacting tax treatment and potentially the structuring of employee benefit plans, highlighting the intertwined nature of tax planning and retirement benefit provision.
Similar to the 5304-SIMPLE, the IRS W-4 form is integral to the employment process, focusing on employees’ tax withholding preferences rather than retirement savings. The relevance of W-4 forms in ensuring the correct tax withholding directly affects employees' take-home pay and indirectly influences their ability to contribute to retirement plans like those established with a 5304-SIMPLE.
The IRS Form 5500 Series shares a domain with the 5304-SIMPLE by concerning employer-sponsored retirement plans, though it is tailored towards reporting and compliance. Required annually, the Form 5500 series discloses details about the plan’s financial condition and operations, ensuring transparency and adherence to regulatory standards, unlike the 5304-SIMPLE’s focus on plan establishment.
The IRS Form 8606, involved with individual retirement accounts (IRAs), is somewhat related to the 5304-SIMPLE as both deal with retirement savings. Form 8606 is used by individuals to track non-deductible contributions to their IRAs, underscoring the importance of documentation and tax implications of retirement savings, themes also pertinent to the SIMPLE IRA plan setup process.
Similar in their employment and retirement context, the IRS Form W-9 connects with the 5304-SIMPLE via its utility in confirming taxpayer identification numbers (TINs) and certification. Essential for setting up proper reporting and tax withholding relationships with independent contractors, W-9 forms indirectly support the broader financial ecosystem in which retirement plans operate by ensuring accurate tax compliance.
The Summary Plan Description (SPD) document, while not an IRS form, is closely associated with the 5304-SIMPLE in the realm of employee retirement plans. The SPD provides detailed information about plan benefits, rights, and obligations to participants and beneficiaries. It’s a critical tool for communication about plan specifics, reflecting the IRS 5304-SIMPLE's goal of establishing clear and beneficial retirement plan structures for employees.
Last, the IRS Form 1099-R, involved in reporting distributions from pensions, annuities, retirement plans, and similar, parallels the 5304-SIMPLE in its connection to retirement funds. While the 1099-R deals with the disbursement phase, reporting on money individuals receive from their retirement accounts, the 5304-SIMPLE pertains to the initial setup and contribution phase, showcasing the lifecycle of retirement saving from inception to benefit realization.
Filling out the IRS 5304-SIMPLE form, essential for setting up a Savings Incentive Match Plan for Employees, requires keen attention to detail. This document, meant to ease the process for both employers and their workforce to contribute to retirement savings, involves nuanced information. Here, we distill down the dos and don'ts to streamline your experience and ensure compliance.
Read the instructions carefully before starting. The IRS provides specific guidelines for each section to prevent common errors and clarify the requirements.
Verify all employer identification numbers (EINs) and personal details. Accurate information is crucial for ensuring that contributions and distributions are correctly reported to the right parties.
Choose your financial institution carefully. This entity will hold and manage the employees' retirement savings, so its credibility and performance history should reassure both employer and employee.
Decide between offering a matching contribution or a nonelective contribution before you fill out the form. This decision impacts the structure of the plan and the benefits it offers to employees.
Keep a copy of the filled-out form for your records. It's essential to have a documented reference of your plan’s setup for both ongoing administration and future reference.
Don't rush through the sections without understanding the implications of your choices. Each decision affects the flexibility and benefits of the plan.
Don't overlook the eligibility criteria for employees. Ensure that you understand who qualifies to participate in the plan to maintain compliance and fairness.
Don't forget to notify your employees about the plan. Communication is key to ensuring that eligible participants can take full advantage of the plan's benefits.
Don't ignore the maintenance and reporting requirements. The form is just the beginning; ongoing administration is necessary to keep the plan compliant and beneficial.
Don't hesitate to seek professional advice if needed. The complexities of retirement plans can be daunting, and professional advice can prevent costly mistakes.
In essence, attention to detail, careful planning, and thorough communication underpin the successful completion of the IRS 5304-SIMPLE form. By adhering to these dos and don'ts, you'll pave the way for a smooth process that benefits both the employer and the employees in the long run.
Understanding the IRS 5304-SIMPLE form involves navigating through a set of common misconceptions. This form is essential for small businesses setting up a Savings Incentive Match Plan for Employees (SIMPLE) IRA Plan where employees can choose their own financial institution for their retirement accounts. Here are four popular misconceptions and the realities behind them.
When it comes to navigating the waters of small business retirement plans, the IRS 5304-SIMPLE form plays a critical role. This document is pivotal for employers opting for a SIMPLE IRA setup, which stands for Savings Incentive Match Plan for Employees. This type of plan allows employees and employers to contribute to traditional IRAs set up for employees, beneficial for small businesses with 100 or fewer employees. To ensure clarity and ease in handling this form, here are ten key takeaways:
Understanding and following these key points when filling out and utilizing the IRS 5304-SIMPLE form can help ensure that your business’s SIMPLE IRA plan is both compliant with IRS regulations and beneficial for your employees.
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