As with all employer-sponsored retirement plans, the SIMPLE IRA has certain requirements that must be followed by the employer. Naturally, there are also specific benefits and other pieces of information that should be taken into consideration when choosing what type of retirement plan to sponsor.

Requirements

IRS Form 5304-SIMPLE may be used by an employer to set up a SIMPLE IRA plan. Note that the plan must be set up effective on a date between January 1st and October 1st. To set up a SIMPLE IRA plan, the employer must not be presently sponsoring any other retirement plans.

An eligible employee is one who has received at least $5000 compensation during any two particular years prior to the current calendar year, or one who is expected to reach the $5000 compensation mark during the current year. An employee in this instance may also be self-employed.

An employer with greater than 100 eligible employees is not eligible to use the SIMPLE IRA plan. Employers already sponsoring a SIMPLE IRA plan may be given a two-year grace period if they surpass the 100 employee limit, although this depends on certain particulars.

When considering employees toward the limit of 100, related businesses, including those that are under common control with the employer's business, must also be used in tallying employees.

Additional requirements should be checked for with the IRS, and requirements may be subject to change.

Benefits

Employers may be able to claim a tax credit for a portion of the cost required to set up a SIMPLE IRA plan. IRS Form 8881 provides assistance regarding credit when starting such a plan.

Employer contributions to employees' plans can be deducted. Additionally, SIMPLE IRA contributions by employers are not subject to federal income tax withholding. Depending upon the particulars, contributions may or may not be subject to social security, Medicare, and federal unemployment taxes (FUTA). Salary reduction contributions in particular are still subject to social security.