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for 2023 (Sec. 401(a)(17); Notice amount of their elective salary-deferral if it allows each plan participant to select
2022-55), thus limiting the contribution contributions (Sec. 408(l)(2)(A)). The the financial institution for receiving
to $6,600 per employee ($330,000 × employer is permitted to designate a the participant’s SIMPLE IRA plan
2%). The employer must notify eligible SIMPLE IRA plan trustee who is re- contributions. An employer should use
employees of its intention to use this quired to (1) provide the employer with Form 5305-SIMPLE if it will deposit all
formula within a reasonable time before a summary description of the plan; (2) SIMPLE IRA plan contributions at an
the 60-day election period for the year provide an account statement to each employer-designated financial institution.
(Sec. 408(p)(2)(B)(i)). employee who has a SIMPLE IRA; The IRS provides substantial guidance
Planning tip: In some cases, a and (3) file Form 5498, IRA Contribu- for establishing a SIMPLE IRA plan in
matching contribution can be less tion Information, with the IRS (Secs. Notice 98-4 (see also IRS.gov webpage
expensive for the employer than a non- 408(i) and (l)(2)(B)). SIMPLE IRA Plan).
elective contribution. For example, an An employer must notify each
employer that has numerous employees employee eligible to participate of the Example. Using a SIMPLE IRA
who are eligible to participate in its procedures for electing to participate plan to maximize benefits for owners:
SIMPLE IRA plan but has experienced in the plan. This notification must be F Inc. is a calendar-year C corpora-
a low participation rate in prior years made before the 60th day before the tion owned equally by A and B. Be-
will contribute less using the matching beginning of the year. An employee who sides the two shareholder-employees,
formula. If the employer’s principal goal first becomes eligible must be notified F has three other employees. F
is to maximize contributions to key em- within a reasonable time before the 60th normally has low net earnings and
ployees, a matching contribution is also day before the first day the employee is is unable to pay a large amount into
a better choice, regardless of participa- eligible to participate (Sec. 401(k)(11) a retirement plan or be obligated to
tion rates by lower-paid employees, (B)(iii)(II)). make a substantial contribution to
because more can be contributed to the Employers may establish a SIMPLE the plan. The owners have consid-
targeted participants. IRA plan with various financial institu- ered adopting a simplified employee
No other contributions can be made tions, mutual fund sponsors, or insurance pension (SEP) plan, but they want
to the SIMPLE IRA plan. Employers companies. SIMPLE IRA plans must to contribute a higher percentage of
must make their matching contributions operate on a calendar year, with a 60-day their own salaries than that contrib-
by the due date (including extensions) enrollment period before the beginning uted for the other three employees.
of the tax return for the year to which of the year. An existing employer may set
the contributions relate. up a SIMPLE IRA plan between Jan. 1 F can adopt a SIMPLE IRA plan.
Contributions to a SIMPLE IRA and Oct. 1 if it did not previously have Under the plan, employees can elect to
plan are deductible by the employer and a SIMPLE IRA plan. If the employer make salary-deferral contributions of
excluded from the employee’s income previously maintained a SIMPLE IRA up to $14,000 for 2022 and $15,500
(Secs. 402(k) and 404(m)). An employ- plan, a new plan can only be effective for 2023 (before considering allowable
ee’s elective salary-deferral contributions on Jan. 1. A new employer that comes catch-up contributions for employees
are wages for Federal Insurance Con- into existence after Oct. 1 of the year the aged 50 and over). F must either
tributions Act (FICA) tax purposes, but SIMPLE IRA plan is established may (1) match each employee’s contribution
employer matching contributions are establish a SIMPLE IRA plan as soon up to 3% of the employee’s compensa-
not. Both employee and employer con- as administratively feasible after starting tion or (2) make a contribution equal
tributions are fully vested when made. the business (Notice 98-4). to 2% of each eligible employee’s
The IRS provides two model forms compensation (regardless of whether
Dealing with administrative for employers to use to set up a SIMPLE the employee made any salary-deferral
requirements for SIMPLE IRAs IRA plan: Form 5304-SIMPLE, Sav- contribution).
An employer maintaining a SIMPLE ings Incentive Match Plan for Employees The table “SIMPLE IRA with
IRA plan is not required to file an an- of Small Employers (SIMPLE) — Not for 3% Matching Contributions” shows
nual Form 5500, Annual Return/Report Use With a Designated Financial Institu- the results if F adopts a SIMPLE
of Employee Benefit Plan, with the tion, and Form 5305-SIMPLE, Savings IRA plan for 2022 (exclusive of
IRS or the U.S. Department of Labor. Incentive Match Plan for Employees of Small catch-up contributions). It assumes
The employer must indicate on Forms Employers (SIMPLE) — for Use With a the company chooses to make 3%
W-2 that eligible employees are Designated Financial Institution. An em- matching contributions (which would
participants in the plan and indicate the ployer should use Form 5304-SIMPLE maximize contributions for the two

www.thetaxadviser.com January 2023 45