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Video instructions and help with filling out and completing Why 5304 Simple Tax Form

Instructions and Help about Why 5304 Simple Tax Form

Music hi I'm Michael Ruger I'm a certified financial planner on the managing partner Greenwich Financial Group and today I'll be going over simply array plans with you so simple IRA plans are type of employed sponsor plan we see these plans use a lot and smaller companies a lot of scenarios are that's a startup company and the owners are telling us that hey I just want to put a plan in place for my employees I'm still socking money in the business but I just want to get something in place simple I race tend to work in that scenario because they're a lot lower costs and 401k plans and allows employees to contribute out of their own pay and it gives them a little bit of an employer contribution the other scenario is the employer just says you know what that I even though the simple IRA contribution limits are lower than 401ks that's enough for me and they've got something a place for my employees and it's lower cost so there's a number of situations where they simple I raise make a lot of sense so I'm just going to kind of go through how they work you have to have the plans established by October 1st so if you're let's say in the 2022 and it's now November you can't establish one for this year you had to have it in place before ten one so that's just something to keep in mind if it's a new plan eligibility eligibility doesn't work like 401k plans so we're not in a 401k plan you can cover just full time employees and a simple iray plan of your a service is considered $5,000 worth a comp in a calendar year so an employee can earn $5,000 with a comp and not be considered a full-time employee but they get a year of service for a simple IRA now one of the catches is with simples you have the option of keeping out employees for two years before they can enter the plan you could be more lenient than that so you can let them in immediately or after six months or a year but the most restrictive you can be as two years of eligibility for a way now like 401k plans these plans allow both employee contributions and employer contributions the way the employee contributions work is employees can defer out of their paycheck the max contribution that they can make for 2022 is 12,500 if they're under 50 if they're over 50 they get a $3,000 jep's they can put in a total of fifteen thousand five hundred you know the other piece with simples is the employer contribution is mandatory like the employer has to put in money for the employees and there's two formulas that you can choose from so the first formula is a two percent non elective which means you have to give two percent of pay to all eligible employees whether they contribute or not the second formula is a three percent matching contribution which is a dollar-for-dollar match up to three percent of pay contributed to the plan but in the matching contribution they have to put in money into the plan in order to get your match which is the matching contributions by far usually the most popular employer contribution formula me simply array plans now there's also some flexibility with a matching contribution that simplier rates have a rule that says you can reduce the matching contribution to as low as 1% in two out of five consecutive years so what that means is for these startup plans they can say well I want to get this plan in place for my employees I don't want to contribute a huge matching contribution so let's do a 1% match for the first two years that the plan exists and then I'll start matching three percent for the firth years three four and five so that's an option the other thing is the employer contribution is a hundred percent of vested which unlike 401k plans that can put a vesting schedule on the employer contributions meaning they have to be there for four or five years if they leave they can't take the money with them and a simple IRA everything is 100% vested so they leave the company they have employer contributions they can always take a hundred percent of that with them now the other caution with these plans they are self administered you don't have at EPA like a 401k plan which is why you don't have the higher expense but there are some compliance requirements that you as the company have to be aware of then unfortunately we see a lot of companies fail out and they get in trouble with the IRS first compliance requirement you have to have a 5304 simple form on file at the employer for every single year you sponsored the plan and we're surprised by how many companies just don't have these and really that's 5304 simple form that you have to distribute to your employees each year notifying them that there is a plan in place notifying them of the employer contribution and the eligibility requirement if they find out you don't have that form it's assumed that all the employees were eligible day one and you owe them the max matching contribution for the full years that the plans were in force so you got to make sure you have that plan on that document on file the other is timeliness of contributions so you're actually withholding money from the employees paycheck and remitting it to their simple IRA account and there's a timing restriction they want you to remit those contributions as soon as administratively feasible which there's some leeway in that but essentially you should be consistent with the timing the uploads and the way that works is if I do payroll on a.

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