The IRS 5304-SIMPLE form is a document used by small businesses to establish a Savings Incentive Match Plan for Employees (SIMPLE) IRA. This form allows employers to offer retirement benefits while providing employees with the opportunity to save for their future. Understanding the implications of this form is crucial for both employers and employees looking to maximize their retirement savings.
The IRS 5304-SIMPLE form plays a crucial role for small businesses looking to establish a SIMPLE IRA plan for their employees. This form is specifically designed to help employers outline the terms of the plan, ensuring that both the business and its employees understand their rights and responsibilities. By completing this form, employers can set up a straightforward retirement savings option that encourages employee participation and contribution. It details eligibility requirements, contribution limits, and the process for employees to enroll in the plan. Additionally, the IRS 5304-SIMPLE form serves as a vital communication tool, providing employees with necessary information about the benefits and features of the SIMPLE IRA, thus promoting informed decision-making regarding their retirement savings. Understanding the importance of this form can help employers foster a supportive work environment while also meeting their legal obligations.
What is the IRS 5304-SIMPLE form?
The IRS 5304-SIMPLE form is used by employers to establish a SIMPLE IRA plan. SIMPLE stands for Savings Incentive Match Plan for Employees. This type of retirement plan is designed for small businesses with fewer than 100 employees, allowing them to offer a simple way for employees to save for retirement while also providing tax benefits for the employer.
Who is eligible to use the IRS 5304-SIMPLE form?
Employers with 100 or fewer employees who earned $5,000 or more in compensation during the preceding calendar year can use the IRS 5304-SIMPLE form. Employees must also meet certain eligibility criteria, such as having earned at least $5,000 in any two preceding years and expecting to earn at least that amount in the current year.
What information is required on the form?
The form requires basic information about the employer, including the name, address, and taxpayer identification number. It also asks for details about the plan, such as the contribution structure and the plan year. Employers must provide information about how employees can participate in the plan.
What are the contribution limits for a SIMPLE IRA?
How does the SIMPLE IRA plan benefit employees?
A SIMPLE IRA allows employees to save for retirement on a tax-deferred basis. Contributions are deducted from their taxable income, reducing their tax burden for the year. Additionally, the funds grow tax-free until withdrawal, which typically occurs during retirement.
What are the deadlines for submitting the IRS 5304-SIMPLE form?
The IRS 5304-SIMPLE form must be completed and provided to eligible employees before the start of the plan year. Generally, the plan year begins on January 1 and ends on December 31. Employers should ensure that the form is distributed in a timely manner to allow employees to make informed decisions about their participation.
Can the SIMPLE IRA plan be terminated?
Yes, an employer can terminate the SIMPLE IRA plan. However, specific procedures must be followed, including notifying employees and ensuring that all contributions are made up to the termination date. Employers should consult with a financial advisor or tax professional to understand the implications of terminating the plan.
Where can I find more information about the IRS 5304-SIMPLE form?
More information can be found on the IRS website or through the IRS publication regarding SIMPLE IRA plans. Additionally, consulting with a tax professional or financial advisor can provide personalized guidance based on individual circumstances.
The IRS 5304-SIMPLE form is an important document for employers who wish to establish a SIMPLE IRA plan for their employees. Here are some key takeaways to consider when filling out and using this form:
Understanding these key points will help ensure that both employers and employees navigate the SIMPLE IRA process effectively and with confidence.
The IRS 5304-SIMPLE form is often misunderstood, leading to confusion among employers and employees alike. Here are eight common misconceptions about this important form:
Understanding these misconceptions can help both employers and employees make informed decisions about retirement planning and contributions.
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)
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.
*
By:
Signature
Date
Address of Employer
Name and title
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.)
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
*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.
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
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.
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.
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Incorrect Employer Identification Number (EIN): Many individuals mistakenly enter the wrong EIN. This number is crucial for identifying your business with the IRS. Double-checking this number can prevent future complications.
Failure to Sign the Form: It's common for people to forget to sign the form. Without a signature, the IRS may consider the form incomplete, which can lead to delays in processing.
Inaccurate Employee Information: Errors in employee names or Social Security numbers can create significant issues. Ensure that all information matches what is on official documents to avoid problems down the line.
Not Keeping a Copy: Some individuals neglect to keep a copy of the completed form. Retaining a copy is essential for your records and can help if any questions arise in the future.
When filling out the IRS 5304-SIMPLE form, it is important to follow specific guidelines to ensure accuracy and compliance. Below are five things you should do and five things you should avoid.
The IRS 5304-SIMPLE form is similar to the IRS Form 5305-SIMPLE, which is also used for establishing a SIMPLE IRA plan. Both forms serve the same purpose of allowing small businesses to set up a retirement savings plan for their employees. The key difference lies in the 5304 form's requirement for employers to provide employees with a choice of financial institutions, while the 5305 form allows the employer to select a single financial institution for all contributions.
Another related document is the IRS Form 5500. This form is used to report information about employee benefit plans, including SIMPLE IRAs. While the 5304-SIMPLE focuses on the establishment of the plan, Form 5500 provides ongoing compliance and reporting requirements. Employers must file Form 5500 annually to ensure transparency and adherence to regulations governing retirement plans.
The IRS Form 1099-R is also comparable, as it is used to report distributions from retirement accounts, including SIMPLE IRAs. When employees take withdrawals or distributions from their SIMPLE IRA, the financial institution must issue a Form 1099-R to report these transactions to both the IRS and the account holder. This form is essential for tax reporting purposes, ensuring that individuals accurately report their income from retirement accounts.
The IRS Form W-2 is another important document that shares similarities. Employers use this form to report wages, tips, and other compensation paid to employees, including any contributions made to a SIMPLE IRA. While the W-2 does not specifically address retirement plans, it plays a crucial role in reflecting the total compensation and tax implications for employees participating in a SIMPLE IRA.
Form 8880, the Credit for Qualified Retirement Savings Contributions, is relevant as well. This form allows eligible taxpayers to claim a tax credit for contributions made to retirement accounts, including SIMPLE IRAs. It encourages participation in retirement savings plans by providing financial incentives, thereby enhancing the attractiveness of plans like those established with the 5304-SIMPLE form.
The IRS Form 1040 is another document that relates to the SIMPLE IRA. This is the individual income tax return form that taxpayers use to report their annual income, including contributions and distributions from retirement accounts. Understanding how SIMPLE IRA transactions affect the overall tax situation is essential for individuals and can influence their retirement planning strategies.
The IRS Form 8606 is also pertinent, as it is used to report nondeductible contributions to traditional IRAs, which can include SIMPLE IRAs under certain circumstances. This form helps taxpayers track their basis in retirement accounts, ensuring that they do not pay taxes on contributions that were already taxed. It is an important tool for managing retirement savings effectively.
To facilitate the sale of a boat in New York, it is essential to utilize a Boat Bill of Sale form, which not only records the transaction but also serves as a legal safeguard for both the buyer and the seller. Ensuring that all the pertinent details are accurately captured strengthens the validity of this document and protects the rights of both parties involved. You can find further information for the document to ensure compliance and clarity in the sales process.
Form 5498 is another document that is similar in nature. This form is used by financial institutions to report contributions made to IRAs, including SIMPLE IRAs. It provides important information to both the IRS and the account holder about contributions, rollovers, and the fair market value of the account, which is crucial for maintaining accurate records of retirement savings.
Finally, the IRS Form 5330 is relevant as it is used to report excise taxes related to retirement plans, including SIMPLE IRAs. If there are excess contributions or other compliance issues, this form must be filed. Understanding the implications of Form 5330 is vital for employers and plan administrators to avoid penalties and ensure the proper management of retirement plans.