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Understanding the Self-Directed SIMPLE IRA

By   ·  2 minute read

Preferred Trust recognizes the unique hurdles faced by small business owners in providing retirement benefits to their employees. Whether grappling with identifying a cost-effective plan, ensuring flexibility, or finding the time for implementation, the initial steps might seem daunting.

Enter the Self-Directed SIMPLE IRA—a potential solution worth considering. By understanding how this distinctive retirement account aligns with the broader spectrum of cost-effective 401(k) options for small businesses, you can assess its suitability for both your business and its employees.

What is a SIMPLE IRA?

A SIMPLE IRA, or Savings Incentive Match Plan for Employees Individual Retirement Account, is a tailored retirement plan designed for small businesses. Merging features of a standard 401(k) with the simplicity of an Individual Retirement Account (IRA), this plan enables employees to make pre-tax contributions directly from their paychecks, matched by the employer up to a specific percentage or flat dollar amount. This matching incentive encourages retirement savings and can be an enticing benefit for potential job candidates.

The simplicity of the SIMPLE IRA is a key advantage, avoiding the administrative complexities and costs associated with larger 401(k) plans. Deemed a cost-effective option for small businesses, employers benefit from tax-deductible contributions, and employees enjoy tax-deferral until retirement withdrawals. Consequently, the SIMPLE IRA stands out as an excellent retirement savings vehicle for businesses with 100 or fewer employees.

What About a SEP IRA?

In delving into the realm of retirement plans, you might consider exploring the SEP IRA, or Simplified Employee Pension Individual Retirement Account. Tailored for small businesses, the SEP IRA shares similarities with the SIMPLE IRA but differs in contribution structure.

The crucial distinction lies in the contribution structure of a SEP IRA. Here, only the employer contributes, with employees not directly participating. Employers can contribute a fixed percentage of each employee's compensation, up to a specific annual limit. Suited for self-employed individuals with minimal employees, the SEP IRA offers a higher contribution limit, appealing to business owners aiming to maximize retirement savings. However, with only employer contributions, employee participation is not directly encouraged, making the SIMPLE IRA a potentially better choice for those seeking active employee involvement.

What Is a Self-Directed SIMPLE IRA?

Understanding the core comparison between a SIMPLE IRA and SEP IRA is crucial. Expanding on this knowledge brings us to the concept of a Self-Directed SIMPLE IRA.

A Self-Directed SIMPLE IRA offers the flexibility to invest in alternative assets beyond traditional options. This includes real estate, private businesses, precious metals, and more. As a small business owner, setting up a Self-Directed SIMPLE IRA platform allows you and your employees to invest more freely, presenting a new dimension to retirement investing.

Benefits of a Self-Directed SIMPLE IRA

  • Portfolio Diversification: Break free from conventional investment options and diversify your portfolio with alternative assets, potentially reducing risk and enhancing returns.
  • Potential for Higher Returns: Explore alternative investments with potentially steadier returns compared to traditional options, aiding in accelerated retirement savings growth.
  • Tax Advantages: Contributions are tax-deductible and investment gains growing with a tax advantage.
  • Greater Control: Empower yourself and your employees with more control over investment decisions, aligning assets with individual interests and financial goals.
  • Employee Attraction and Retention: The innovative approach of a Self-Directed SIMPLE IRA can appeal to both prospective and current employees.

Navigating the intricate landscape of retirement planning becomes a creative and flexible endeavor with a Self-Directed SIMPLE IRA. Preferred Trust can assist you in further understanding if this is the solution you’ve been looking for. Schedule a free consultation call with us today!