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CASE STUDY

SIMPLE IRA with 3% matching contributions SIMPLE IRA plan for a small corpora-
tion, particularly when many of the
rank-and-file employees elect to make
Elective
Employee Earnings 3% match lower salary-deferral contributions than
deferral
the shareholder-employees.
A (owner) $ 80,000 $14,000 $2,400 The primary disadvantage of a
B (owner) 60,000 14,000 1,800 SIMPLE IRA is the lack of flexibility. If
C 50,000 3,000 1,500 the sponsor has an especially profitable
year, no more may be contributed to the
D 25,000 500 500
plan. A plan allowing a larger contribu-
E 20,000 — — tion may not be established because a
Total $235,000 $6,200 SIMPLE IRA can only be used when
there are no other plans. ■

shareholder-employees) and that two of employees are only $2,000 (the match-
the three other employees contribute the ing contributions for C and D). If the Contributor
amounts shown. corporation adopts a SEP with a 10%
Trenda B. Hackett, CPA, is an executive
Under these assumptions, total retire- contribution rate, the total cost to the
editor with Thomson Reuters Checkpoint.
ment plan contributions going to the company is $23,500, with only $14,000
For more information about this column,
owners amount to $32,200 ($14,000 going to the owners and $9,500 going
contact thetaxadviser@aicpa.org.
+ $14,000 + $2,400 + $1,800). Em- to the other three employees. There
ployer contributions for the three other is a distinct advantage to adopting a

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46 January 2023 The Tax Adviser