Important Notice for SIMPLE IRA Plan Sponsors
As plan sponsor of a SIMPLE IRA Plan, you are required by the Internal Revenue Service (IRS) to provide each eligible employee with the following information prior to the employee’s 60-day election period (generally beginning November 2):
- Details concerning the employee’s opportunity to make or change a salary reduction election
- The employer’s decision to make either a matching or non-elective contribution
- Summary description of the plan
- The employee’s right to select the financial institution that will serve as the SIMPLE IRA Custodian
If you established the SIMPLE IRA Plan using Form 5304-SIMPLE, the summary description requirement may be satisfied by providing to your employees a completed copy of page 1 and 2 of Form 5304-SIMPLE that reflects the terms of your SIMPLE IRA Plan. Additionally, you may use page 3 of Form 5304-SIMPLE to assist you with satisfying the other notification requirements. Form 5304-SIMPLE is available at https://www.irs.gov/pub/irs-pdf/f5304sim.pdf.
Distribution Procedures
Employees may take a distribution from their E*TRADE SIMPLE IRA after two years from the date the account was opened (the “2-Year Period”) by submitting an online IRA distribution request at etrade.com/onlinedistribution. To take a distribution before the end of the 2-Year Period, employees must submit their distribution request using a paper form. To submit a distribution request by paper form, please follow these steps.
1. Download the IRA Distribution Request form.
2. Submit the completed form to us with a valid government issued ID1 by either:
• Uploading it securely at documentupload.etrade.com
• Mailing or faxing it to the address and fax number at the top of the form
Please note: Distributions from a SIMPLE IRA are subject to ordinary income taxes and may be subject to a penalty tax.
SECURE 2.0 Act of 2022 Changes Impacting SIMPLE IRAs
The SECURE 2.0 Act of 2022 (SECURE 2.0) was signed into law on December 29, 2022, as part of the Consolidated Appropriations Act of 2023. The law created additional contribution rules that the plan may be able to allow. The IRS has issued limited guidance in Notice 2024-2 which focused on contribution limits, mid-year termination of plans, and reporting requirements for SIMPLE Roth IRAs however, additional guidance is needed before all provisions may be fully implemented.
Treatment of Student Loan Payments as Elective Deferrals for Purposes of Matching Contributions
Employer matching contributions may be made on behalf of employees with respect to "qualified student loan payments".
Additional Non-elective Contributions for SIMPLE Plans
Employers are permitted to make additional contributions to each participant in a uniform manner, provided the additional contribution does not exceed the lesser of 10% of a participant's compensation or $5,000 (as indexed).
Increased Deferral and Catch-up Contribution Limits
The elective deferral and catch-up limits are automatically increased to 110% of the current year limit if you are an eligible employer with 25 or fewer qualifying employees (i.e., a small employer SIMPLE plan) and it is permitted by plan. If you are an eligible employer with more than 25 but fewer than 100 qualifying employees, you may elect to provide the higher deferral and catch-up limits, provided that it is permitted by the plan and you either make a 4% matching contribution or a 3% non-elective contribution (i.e., electing employer SIMPLE plan). Increased limits only apply to eligible employers if they have not maintained another retirement plan during the 3-year period before offering the SIMPLE IRA plan. An election to apply the increased limits remains in effect until revoked. If you decide to not offer the increased limits for a future year, you must take written action (i.e., corporate resolution or other instrument) to revoke the election before providing the annual notice to your employees.
Mid-year Termination of and Rollover from SIMPLE IRA
An employer may elect to terminate the SIMPLE IRA Plan during the plan year if they have established a safe harbor 401(k) plan as its replacement. The employer must take formal written action (i.e., corporate resolution or other instrument) specifying the termination date and must provide employees at least 30 days notice and a description of how the termination and rollover will work.
SIMPLE Roth IRA
A SIMPLE IRA may be designated as a Roth IRA and accept Roth contributions under the SIMPLE IRA plan. E*TRADE from Morgan Stanley expects to offer this option for SIMPLE IRA Plans beginning in 2025
INCREASED CATCH-UP CONTRIBUTION LIMITS FOR AGES 60-63
Effective for 2025 the catch-up limit for individuals who have attained age 60, 61, 62, or 63 will be increased to 150% of the limit in effect for those age 50 and older in 2025.
For additional information on Form 5304-SIMPLE and distributions, we encourage you to speak with a tax advisor.