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The IRS 5304-SIMPLE form plays a crucial role in the establishment of a Savings Incentive Match Plan for Employees, commonly known as a SIMPLE IRA. Designed primarily for small businesses, this form allows employers to offer a retirement savings option that is both straightforward and beneficial for employees. By completing the IRS 5304-SIMPLE, employers can outline the specific terms of the plan, including eligibility requirements and contribution details. This form also serves to inform employees about their rights and responsibilities under the plan, helping them understand how they can contribute to their retirement savings effectively. Additionally, it ensures compliance with IRS regulations, which is vital for maintaining the tax-advantaged status of the SIMPLE IRA. Understanding the nuances of the IRS 5304-SIMPLE is essential for employers looking to provide a competitive benefits package while fostering a culture of savings and financial security among their workforce.

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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)

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.

 

 

 

 

 

 

*

*

*

*

*

 

 

 

 

 

 

 

 

Name of Employer

 

By:

Signature

Date

 

 

 

 

 

 

Address of Employer

 

Name and title

 

 

Form 5304-SIMPLE (Rev. 3-2012)

Form 5304-SIMPLE (Rev. 3-2012)

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.)

IV. Employee Selection of Financial Institution

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

 

Date

*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.

Form 5304-SIMPLE (Rev. 3-2012)

Form 5304-SIMPLE (Rev. 3-2012)

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

Form 5304-SIMPLE (Rev. 3-2012)

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.

Form 5304-SIMPLE (Rev. 3-2012)

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.

➤ PDF File

Form Specifications

Fact Name Description
Purpose The IRS 5304-SIMPLE form is used by employers to establish a SIMPLE IRA plan for their employees, allowing for tax-deferred retirement savings.
Eligibility Employers with 100 or fewer employees who earned $5,000 or more in the preceding year can use this form to set up a SIMPLE IRA.
Contribution Limits For 2023, employees can contribute up to $15,500 to their SIMPLE IRA, with an additional catch-up contribution of $3,500 for those aged 50 and older.
Employer Contributions Employers must either match employee contributions dollar-for-dollar up to 3% of the employee's compensation or make a fixed contribution of 2% of each eligible employee's compensation.
Filing Requirements Employers do not need to file the IRS 5304-SIMPLE form with the IRS, but they must provide it to eligible employees to inform them about the plan.
State-Specific Forms Some states may have additional requirements or forms related to SIMPLE IRAs. Always check state laws to ensure compliance.

IRS 5304-SIMPLE: Usage Guidelines

Completing the IRS 5304-SIMPLE form is a straightforward process. This form is used by employers to establish a SIMPLE IRA plan for their employees. After filling out the form, employers will need to distribute it to eligible employees and ensure compliance with the plan's requirements.

  1. Obtain the IRS 5304-SIMPLE form from the IRS website or your tax professional.
  2. Enter the name of your business in the designated field at the top of the form.
  3. Provide your business address, including city, state, and ZIP code.
  4. Fill in the employer identification number (EIN) in the appropriate section.
  5. Indicate the tax year for which the form is being completed.
  6. Choose the type of SIMPLE IRA plan you wish to establish (e.g., employee contributions, employer contributions).
  7. Specify the eligibility criteria for employees to participate in the plan.
  8. Include any additional information required, such as the plan's start date.
  9. Review the completed form for accuracy and completeness.
  10. Sign and date the form to validate it.
  11. Distribute copies of the completed form to all eligible employees.

Your Questions, Answered

What is the IRS 5304-SIMPLE form?

The IRS 5304-SIMPLE form is used by employers to set up a SIMPLE IRA plan for their employees. SIMPLE stands for Savings Incentive Match Plan for Employees. This form helps employers outline how the plan works and provides information on contributions, eligibility, and other important details.

Who can use the IRS 5304-SIMPLE form?

Small businesses with 100 or fewer employees can use this form to establish a SIMPLE IRA plan. It is designed for employers who want to provide retirement savings options without the complexities of larger retirement plans.

What are the contribution limits for a SIMPLE IRA?

For 2023, employees can contribute up to $15,500 to their SIMPLE IRA. If they are age 50 or older, they can make an additional catch-up contribution of $3,500. Employers must either match employee contributions up to 3% of their salary or make a fixed contribution of 2% for all eligible employees.

How do I fill out the IRS 5304-SIMPLE form?

Filling out the form involves providing basic information about your business, including the name, address, and Employer Identification Number (EIN). You will also need to specify the plan's terms, such as the contribution structure and eligibility requirements. Clear instructions are provided on the form to guide you through the process.

When is the deadline for establishing a SIMPLE IRA plan?

The deadline for establishing a SIMPLE IRA plan is generally October 1 of the year you want the plan to take effect. If you want to start a plan for the upcoming year, make sure to submit the IRS 5304-SIMPLE form by this date.

Can an employee contribute to a SIMPLE IRA if they have another retirement plan?

Yes, employees can contribute to a SIMPLE IRA even if they have another retirement plan, such as a 401(k). However, they should be aware of the total contribution limits across all plans to avoid exceeding IRS limits.

What happens if I miss the deadline for establishing a SIMPLE IRA?

If you miss the October 1 deadline, you will not be able to establish a SIMPLE IRA for that year. However, you can still set up the plan for the following year by submitting the form before the next deadline.

Are there any penalties for not following the SIMPLE IRA rules?

Yes, failing to comply with SIMPLE IRA rules can lead to penalties. For example, if an employer does not make required contributions, they may face a 10% penalty on the amount they should have contributed. It's important to follow the guidelines to avoid these issues.

Can I change the terms of the SIMPLE IRA plan after it is established?

Yes, you can change the terms of your SIMPLE IRA plan, but you must notify your employees of any changes. Changes should be documented properly, and you may need to fill out a new IRS 5304-SIMPLE form to reflect the updated terms.

Where can I find the IRS 5304-SIMPLE form?

You can find the IRS 5304-SIMPLE form on the official IRS website. It is available for download and can be filled out electronically or printed for manual completion. Make sure to use the most current version to ensure compliance with IRS regulations.

Common mistakes

  1. Failing to provide accurate employer information. Ensure that the employer's name, address, and identification number are correct.

  2. Not indicating the correct plan year. The plan year should be clearly stated to avoid confusion regarding the effective dates.

  3. Omitting eligible employee details. It is essential to list all employees who qualify for participation in the SIMPLE IRA plan.

  4. Incorrectly calculating contribution limits. Each employee's contribution should adhere to the IRS limits to avoid penalties.

  5. Neglecting to sign and date the form. A signature and date are required to validate the submission of the form.

  6. Not retaining a copy for records. Keeping a copy of the completed form is crucial for future reference and compliance.

  7. Failing to communicate the plan details to employees. Clear communication about the SIMPLE IRA plan is necessary for employee understanding and participation.

Documents used along the form

The IRS 5304-SIMPLE form is used by employers to establish a SIMPLE IRA plan for their employees. Along with this form, several other documents may be necessary to ensure compliance and provide clarity about the plan. Below is a list of commonly associated forms and documents that may be required or beneficial when setting up a SIMPLE IRA plan.

  • SIMPLE IRA Adoption Agreement: This document outlines the terms of the SIMPLE IRA plan and serves as a formal agreement between the employer and the employees regarding the plan's operation.
  • SIMPLE IRA Plan Description: This document provides detailed information about how the SIMPLE IRA works, including eligibility, contribution limits, and withdrawal rules.
  • Employee Enrollment Form: Employees use this form to enroll in the SIMPLE IRA plan. It collects necessary personal information and allows employees to specify their contribution amounts.
  • Contribution Election Form: This form allows employees to choose their contribution percentage for the SIMPLE IRA. It is critical for ensuring the correct amounts are deducted from their paychecks.
  • Annual Contribution Summary: Employers may need to provide this summary to document total contributions made to each employee's SIMPLE IRA for the year. It is essential for tax reporting purposes.
  • Notice of Eligibility: Employers are required to provide this notice to employees to inform them about their eligibility to participate in the SIMPLE IRA plan.
  • Investment Option Disclosure: This document outlines the investment options available within the SIMPLE IRA, helping employees make informed decisions about their contributions.
  • Withdrawal Request Form: Employees must complete this form to request withdrawals from their SIMPLE IRA accounts. It specifies the amount and reason for the withdrawal.

Each of these documents plays a vital role in the administration of a SIMPLE IRA plan. Ensuring that all necessary forms are completed and maintained can help facilitate a smooth experience for both employers and employees, fostering a better understanding of retirement benefits.

Similar forms

The IRS 5304-SIMPLE form is primarily used for establishing a SIMPLE IRA plan, which allows small businesses to offer retirement savings options to their employees. Several other forms and documents serve similar purposes in the realm of retirement plans and employee benefits. Below are eight documents that share similarities with the IRS 5304-SIMPLE form:

  • IRS Form 5500: This form is required for annual reporting by employee benefit plans. Like the IRS 5304-SIMPLE, it ensures compliance with regulations and provides transparency about the plan's financial status.
  • IRS Form 8880: This form is used to claim the Retirement Savings Contributions Credit. Similar to the IRS 5304-SIMPLE, it encourages retirement savings by offering tax credits to eligible taxpayers who contribute to retirement accounts.
  • IRS Form 5305-SEP: This document establishes a Simplified Employee Pension (SEP) plan. Both forms cater to small businesses and simplify the process of providing retirement benefits to employees.
  • IRS Form 401(k) Plan Document: This document outlines the terms of a 401(k) plan. Like the IRS 5304-SIMPLE, it serves to inform employees about their retirement savings options and the rules governing those plans.
  • IRS Form 5305: This is a basic plan document for establishing an Individual Retirement Account (IRA). It shares the purpose of facilitating retirement savings and simplifying the enrollment process for individuals.
  • IRS Form 5500-EZ: This form is a simplified version of Form 5500 for one-participant plans. It serves a similar reporting function and is relevant for small business owners with retirement plans.
  • IRS Form 1099-R: This form reports distributions from retirement plans. Like the IRS 5304-SIMPLE, it plays a role in the overall management and reporting of retirement funds.
  • Summary Plan Description (SPD): This document provides detailed information about an employee benefit plan. Similar to the IRS 5304-SIMPLE, it aims to communicate essential details to employees regarding their retirement options.

Dos and Don'ts

When filling out the IRS 5304-SIMPLE form, it is essential to approach the process with care. Here are five things to consider, both what to do and what to avoid.

  • Do ensure that all information is accurate and complete. Double-check names, addresses, and tax identification numbers.
  • Do provide clear and concise answers to all questions. Ambiguities can lead to processing delays.
  • Do keep a copy of the completed form for your records. This can be helpful for future reference.
  • Don't rush through the form. Take your time to understand each section before filling it out.
  • Don't forget to review the instructions carefully. They provide valuable guidance on how to complete the form correctly.

By following these guidelines, individuals can navigate the process more effectively and ensure compliance with IRS requirements.

Misconceptions

The IRS 5304-SIMPLE form is an important document for small businesses looking to establish a SIMPLE IRA plan. However, several misconceptions surround this form that can lead to confusion. Here are eight common misconceptions explained:

  • The IRS 5304-SIMPLE form is only for large businesses. This is not true. The form is specifically designed for small businesses with 100 or fewer employees.
  • Only employers can fill out the IRS 5304-SIMPLE form. While employers initiate the form, employees must also sign it to indicate their participation in the SIMPLE IRA plan.
  • The form is not required if the business already has a retirement plan. Even if a business has another retirement plan, if they want to establish a SIMPLE IRA, they still need to complete the IRS 5304-SIMPLE form.
  • Submitting the form to the IRS is mandatory. The form does not need to be submitted to the IRS. Instead, it should be kept on file for your records and given to employees.
  • Once the form is completed, it cannot be changed. This is a misconception. Employers can amend the SIMPLE IRA plan, but they must follow specific procedures to do so.
  • The IRS 5304-SIMPLE form is only for new businesses. Existing businesses can also use the form to set up a SIMPLE IRA, regardless of their operational history.
  • All employees must participate in the SIMPLE IRA plan. Participation is voluntary. Employees can choose whether or not to enroll in the plan after the form is provided.
  • Filing the form guarantees tax benefits. While the SIMPLE IRA offers tax advantages, the benefits depend on various factors, including contributions made and individual tax situations.

Understanding these misconceptions is crucial for both employers and employees. Properly navigating the IRS 5304-SIMPLE form can lead to effective retirement planning and compliance with regulations.

Key takeaways

The IRS 5304-SIMPLE form is essential for employers who want to establish a SIMPLE IRA plan for their employees. Here are key takeaways to keep in mind when filling out and using this form:

  • Eligibility: Ensure that your business qualifies to use a SIMPLE IRA plan. Generally, businesses with 100 or fewer employees can participate.
  • Employee Participation: Employees must be given the option to participate in the plan. Provide them with the necessary information about the plan.
  • Contribution Limits: Familiarize yourself with the annual contribution limits. For 2023, employees can contribute up to $15,500, with an additional catch-up contribution for those aged 50 and over.
  • Employer Contributions: Decide whether to match employee contributions or make a non-elective contribution. This choice affects how you fill out the form.
  • Deadline: Submit the form by October 1st of the year you want the plan to begin. Late submissions may delay the plan's start date.
  • Record Keeping: Maintain accurate records of employee contributions and employer matches. This is crucial for compliance and future audits.
  • Plan Documents: Provide employees with a summary of the plan and any related documents. Transparency helps ensure everyone understands their benefits.
  • Annual Review: Review the plan annually to ensure it meets your business needs and complies with IRS regulations. Adjust contributions as necessary.