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Corner of Business Owners: Understanding SIMPLE IRAs - Pros, Cons, & Downsides


SIMPLE IRAs aren't always so simple. This week's Business Owner's Corner covers what you need to know before establishing one for you and your employees....(read more)



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As a business owner, one of your primary concerns is likely providing your employees with a retirement plan that is both simple and affordable. One option that you may be considering is a SIMPLE IRA, or Savings Incentive Match Plan for Employees. While these types of plans can be beneficial for employers in many ways, they are not without their downsides. In this article, we'll take a closer look at the pros and cons of SIMPLE IRAs to help you make an informed decision for your business. The Good: One of the primary benefits of a SIMPLE IRA is that they are easy to set up and maintain. The requirements for participation are minimal, and the employer matching contributions are tax-deductible. This means that you can provide a retirement savings plan for your employees without incurring an excessive administrative burden or tax liability. In addition, SIMPLE IRAs are flexible in terms of the contributions that can be made. Employers can choose to either match employee contributions up to a certain percentage of their salary or make a fixed contribution regardless of employee participation. This allows you to tailor your plan to fit the needs of your business and your employees. Another advantage of SIMPLE IRAs is that they are portable. If an employee leaves your company, they can take their contributions and any employer matching funds with them to their new employer or roll it over into another retirement account. This can be a selling point for employees, as they feel more in control of their financial future. The Bad: While there are many benefits to SIMPLE IRAs, there are also downsides to consider. One significant drawback is that the contribution limits are relatively low compared to other retirement plans. In 2021, employees can contribute up to $13,500 per year, with an additional $3,000 catch-up contribution for those over 50. This may not be enough for employees who are looking to maximize their retirement savings, particularly as they get closer to retirement age. In addition, SIMPLE IRAs require employer contributions every year, regardless of profitability. While this may be seen as a fair and consistent way to provide for employees, it can create a strain on small businesses that are struggling to stay afloat financially. The Ugly: Finally, one potential downside to SIMPLE IRAs is that they can be inflexible in terms of investment options. Unlike other retirement plans, such as 401(k)s, SIMPLE IRAs do not allow for the investment in individual stocks, and instead are limited to mutual funds and other pre-selected investment options. For employees who are looking for more control over their investments, this may be a non-starter. Conclusion: Overall, SIMPLE IRAs can be a great option for employers who are looking for a simple and affordable way to provide retirement savings for their employees. However, they may not be the best fit for every business, particularly those that are looking for higher contribution limits or more flexible investment options. Ultimately, the decision to offer a SIMPLE IRA should be based on the unique needs of your business and your employees. https://inflationprotection.org/corner-of-business-owners-understanding-simple-iras-pros-cons-downsides/?feed_id=87088&_unique_id=6436c2d040257 #Inflation #Retirement #GoldIRA #Wealth #Investing #401k #business #businesscosts #BusinessExpenses #businessoperations #businessowner #businessretirementplans #cash #deferringtaxes #Employeebenefits #employeecompensation #Finance #FinancialPlanning #investing #investing101 #money #payroll #payrollcosts #reducingtaxes #Retirement #RetirementPlans #RothIRA #sepira #simpleira #SIMPLEIRAs #smallbusiness #smallbusinessowner #w2 #SimpleIRA #401k #business #businesscosts #BusinessExpenses #businessoperations #businessowner #businessretirementplans #cash #deferringtaxes #Employeebenefits #employeecompensation #Finance #FinancialPlanning #investing #investing101 #money #payroll #payrollcosts #reducingtaxes #Retirement #RetirementPlans #RothIRA #sepira #simpleira #SIMPLEIRAs #smallbusiness #smallbusinessowner #w2

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