Case of the Week: Setting up a SIMPLE IRA Plan

The ERISA consultants at the Retirement Learning Center Resource regularly receive calls from financial advisors on a broad array of technical topics related to IRAs and qualified retirement plans.

A recent call with an advisor in New Mexico is representative of a common inquiry involving a savings incentive match plan for employees (SIMPLE) IRA plan. The advisor asked:

“Is there a deadline for establishing a SIMPLE IRA plan for 2017?”

Highlights of Discussion

Yes, there is. The general deadline for establishing a SIMPLE IRA plan for a given year is October 1. For example, the deadline for an eligible business owner to set up a SIMPLE IRA plan for 2017 is Oct. 1, 2017.

There are two exceptions to the general rule. First, if the business comes into existence after October 1 of the year the SIMPLE IRA plan is desired, then the new business owner may still set up a SIMPLE IRA plan for the year, provided he or she does so as soon as administratively feasible after the start of the new business. Second, if a business has previously maintained a SIMPLE IRA plan, then it may only set up a new SIMPLE IRA plan effective on January 1 of the following year (e.g., set up the plan in 2017 with an effective date of Jan. 1, 2018).

Businesses that are eligible to establish SIMPLE IRA plans are those that:

  • do not maintain any other qualified retirement plans; and
  • have 100 or fewer employees who received at least $5,000 in compensation from the employer for the preceding year [IRC §408(p)(2)(c)(i) and IRS Notice 98-4, Q&A B4].

The basic steps for establishing a SIMPLE IRA plan are:

  1. execute a written plan document (either a government Form 5304-SIMPLE or Form 5305-SIMPLE, or a prototype plan document from a mutual fund company, insurance company, bank or other qualified institution);
  2. provide notice to employees; and
  3. ensure each participant sets up a SIMPLE IRA to receive contributions.

Employees who are eligible to participate in a SIMPLE IRA plan are those who received at least $5,000 in compensation from the employer during any two preceding years and are reasonably expected to receive at least $5,000 in compensation during the current year.


Business owners who are interested in establishing SIMPLE IRA plans must be aware of the deadline to do so, and the additional steps involved to ensure a successful set up.

APEX 2017_winner 125x130 “Case of the Week” is the winner of an APEX Award for Publication Excellence for 2017.

Any information provided is for informational purposes only. It cannot be used for the purposes of avoiding penalties and taxes. Consumers should consult with their tax advisor or attorney regarding their specific situation.

©2017, Retirement Learning Center, LLC. Used with permission.

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