SIMPLE IRA
Like a 401(k), this account offers tax-deferral and pretax contributions, plus an employee contribution and an employer match.
Who can open one?
Anyone who is self-employed or a small-business owner can open a SIMPLE IRA. Small businesses with 100 employees or fewer can also open a SIMPLE IRA plan.
How it works
Like the self-employed 401(k), you get 2 chances to contribute.
- As the employee, you can contribute up to 100% of your compensation, up to $13,500 in 2020 ($13,000 in 2019).
- As the employer, you must either put in a 3% matching contribution or a 2% non-elective contribution. The latter is not contingent on the employee contribution, the way a matching contribution to a 401(k) typically is.
But be aware that a SIMPLE IRA can require the employer to make contributions to the plan even if the business has no profits.
Who it may help
The SIMPLE IRA is an inexpensive plan for businesses with fewer than 100 employees. It also allows for salary deferrals by employees and there are no tax forms to file.
The SIMPLE IRA also allows those age 50 and over to save an additional $3,000 a year.
Things to keep in mind
The deadline to set up the plan is October 1. You can make matching and nonelective contributions until the company's tax filing deadline—including extensions.