Fill in a Valid IRS 5304-SIMPLE Template

The IRS 5304-SIMPLE form is a document used by employers to establish a Savings Incentive Match Plan for Employees (SIMPLE) IRA. This plan allows employees to contribute to their retirement savings while receiving matching contributions from their employer. Understanding this form is essential for businesses looking to offer attractive retirement benefits, so don’t hesitate to get started by filling out the form below.

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For small businesses and self-employed individuals looking to offer retirement savings options to their employees, the IRS 5304-SIMPLE form plays a crucial role. This form is used to establish a Savings Incentive Match Plan for Employees, or SIMPLE IRA, which allows both employers and employees to contribute towards retirement while enjoying tax benefits. One of the major advantages of the SIMPLE IRA is its straightforward setup and maintenance process compared to other retirement plans. Employers can choose between matching employee contributions or making non-elective contributions for their employees. Additionally, the form provides essential guidelines for eligibility, contribution limits, and withdrawal rules, ensuring that all parties are well-informed throughout the process. Understanding this form is vital for anyone looking to create a robust retirement plan that can not only attract talent but also secure financial futures.

IRS 5304-SIMPLE Example

Form 5304-SIMPLE

(Rev. March 2012)

Department of the Treasury

Internal Revenue Service

Savings Incentive Match Plan

for Employees of Small Employers (SIMPLE)—Not for Use With a Designated Financial Institution

OMB No. 1545-1502

Do not file

with the Internal Revenue Service

establishes the following SIMPLE

Name of Employer

IRA plan under section 408(p) of the Internal Revenue Code and pursuant to the instructions contained in this form.

Article I—Employee Eligibility Requirements (complete applicable box(es) and blanks—see instructions)

1General Eligibility Requirements. The Employer agrees to permit salary reduction contributions to be made in each calendar year to the SIMPLE IRA established by each employee who meets the following requirements (select either 1a or 1b):


a	Full Eligibility. All employees are eligible.
b	Limited Eligibility. Eligibility is limited to employees who are described in both (i) and (ii) below:
	(i)	Current compensation. Employees who are reasonably expected to receive at least $			in compensation
	(ii)	(not to exceed $5,000) for the calendar year.
	(ii)	Prior compensation. Employees who have received at least $		in compensation (not to exceed $5,000)
		during any	calendar year(s) (insert 0, 1, or 2) preceding the calendar year.

2Excludable Employees.

The Employer elects to exclude employees covered under a collective bargaining agreement for which retirement benefits were the subject of good faith bargaining. Note: This box is deemed checked if the Employer maintains a qualified plan covering only such employees.

Article II—Salary Reduction Agreements (complete the box and blank, if applicable—see instructions)

1Salary Reduction Election. An eligible employee may make an election to have his or her compensation for each pay period reduced. The total amount of the reduction in the employee’s compensation for a calendar year cannot exceed the applicable amount for that year.

2Timing of Salary Reduction Elections

aFor a calendar year, an eligible employee may make or modify a salary reduction election during the 60-day period immediately preceding January 1 of that year. However, for the year in which the employee becomes eligible to make salary reduction contributions, the period during which the employee may make or modify the election is a 60-day period that includes either the date the employee becomes eligible or the day before.

b In addition to the election periods in 2a, eligible employees may make salary reduction elections or modify prior elections,

. If the Employer chooses this option, insert a period or periods (for example, semi-annually, quarterly, monthly, or daily) that will apply uniformly to all eligible employees.

cNo salary reduction election may apply to compensation that an employee received, or had a right to immediately receive, before execution of the salary reduction election.

dAn employee may terminate a salary reduction election at any time during the calendar year. If this box is checked, an employee who terminates a salary reduction election not in accordance with 2b may not resume salary reduction contributions during the calendar year.

Article III—Contributions (complete the blank, if applicable—see instructions)

1Salary Reduction Contributions. The amount by which the employee agrees to reduce his or her compensation will be contributed by the Employer to the employee’s SIMPLE IRA.

2 a Matching Contributions

(i)For each calendar year, the Employer will contribute a matching contribution to each eligible employee’s SIMPLE IRA equal to the employee’s salary reduction contributions up to a limit of 3% of the employee’s compensation for the calendar year.

(ii)The Employer may reduce the 3% limit for the calendar year in (i) only if:

(1) The limit is not reduced below 1%; (2) The limit is not reduced for more than 2 calendar years during the 5-year period ending with the calendar year the reduction is effective; and (3) Each employee is notified of the reduced limit within a reasonable period of time before the employees’ 60-day election period for the calendar year (described in Article II, item 2a).

bNonelective Contributions

(i)For any calendar year, instead of making matching contributions, the Employer may make nonelective contributions equal to 2% of

compensation for the calendar year to the SIMPLE IRA of each eligible employee who has at least $, (not more

than $5,000) in compensation for the calendar year. No more than $250,000* in compensation can be taken into account in determining the nonelective contribution for each eligible employee.

(ii)For any calendar year, the Employer may make 2% nonelective contributions instead of matching contributions only if:

(1)Each eligible employee is notified that a 2% nonelective contribution will be made instead of a matching contribution; and

(2)This notification is provided within a reasonable period of time before the employees’ 60-day election period for the calendar year (described in Article II, item 2a).

3Time and Manner of Contributions

aThe Employer will make the salary reduction contributions (described in 1 above) for each eligible employee to the SIMPLE IRA established at the financial institution selected by that employee no later than 30 days after the end of the month in which the money is withheld from the employee’s pay. See instructions.

bThe Employer will make the matching or nonelective contributions (described in 2a and 2b above) for each eligible employee to the SIMPLE IRA established at the financial institution selected by that employee no later than the due date for filing the Employer’s tax return, including extensions, for the taxable year that includes the last day of the calendar year for which the contributions are made.

* This is the amount for 2012. For later years, the limit may be increased for cost-of-living adjustments. The IRS announces the increase, if any, in a news release, in the Internal Revenue Bulletin, and on the IRS’s internet website at IRS.gov.

For Paperwork Reduction Act Notice, see the instructions.

Cat. No. 23377W

Form 5304-SIMPLE (Rev. 3-2012)

Form 5304-SIMPLE (Rev. 3-2012)	Page 2
Article IV—Other Requirements and Provisions

1Contributions in General. The Employer will make no contributions to the SIMPLE IRAs other than salary reduction contributions (described in Article III, item 1) and matching or nonelective contributions (described in Article III, items 2a and 2b).

2Vesting Requirements. All contributions made under this SIMPLE IRA plan are fully vested and nonforfeitable.

3No Withdrawal Restrictions. The Employer may not require the employee to retain any portion of the contributions in his or her SIMPLE IRA or otherwise impose any withdrawal restrictions.

4Selection of IRA Trustee. The Employer must permit each eligible employee to select the financial institution that will serve as the trustee, custodian, or issuer of the SIMPLE IRA to which the Employer will make all contributions on behalf of that employee.

5Amendments To This SIMPLE IRA Plan. This SIMPLE IRA plan may not be amended except to modify the entries inserted in the blanks or boxes provided in Articles I, II, III, VI, and VII.

6Effects Of Withdrawals and Rollovers

aAn amount withdrawn from the SIMPLE IRA is generally includible in gross income. However, a SIMPLE IRA balance may be rolled over or transferred on a tax-free basis to another IRA designed solely to hold funds under a SIMPLE IRA plan. In addition, an individual may roll over or transfer his or her SIMPLE IRA balance to any IRA or eligible retirement plan after a 2-year period has expired since the individual first participated in any SIMPLE IRA plan of the Employer. Any rollover or transfer must comply with the requirements under section 408.

bIf an individual withdraws an amount from a SIMPLE IRA during the 2-year period beginning when the individual first participated in any SIMPLE IRA plan of the Employer and the amount is subject to the additional tax on early distributions under section 72(t), this additional tax is increased from 10% to 25%.

Article V—Definitions

1Compensation

aGeneral Definition of Compensation. Compensation means the sum of the wages, tips, and other compensation from the Employer subject to federal income tax withholding (as described in section 6051(a)(3)), the amounts paid for domestic service in a private home, local college club, or local chapter of a college fraternity or sorority, and the employee’s salary reduction contributions made under this plan, and, if applicable, elective deferrals under a section 401(k) plan, a SARSEP, or a section 403(b) annuity contract and compensation deferred under a section 457 plan required to be reported by the Employer on Form W-2 (as described in section 6051(a)(8)).

bCompensation for Self-Employed Individuals. For self-employed individuals, compensation means the net earnings from self-employment determined under section 1402(a), without regard to section 1402(c)(6), prior to subtracting any contributions made pursuant to this plan on behalf of the individual.

2Employee. Employee means a common-law employee of the Employer. The term employee also includes a self-employed individual and a leased employee described in section 414(n) but does not include a nonresident alien who received no earned income from the Employer that constitutes income from sources within the United States.

3Eligible Employee. An eligible employee means an employee who satisfies the conditions in Article I, item 1 and is not excluded under Article I, item 2.

4SIMPLE IRA. A SIMPLE IRA is an individual retirement account described in section 408(a), or an individual retirement annuity described in section 408(b), to which the only contributions that can be made are contributions under a SIMPLE IRA plan and rollovers or transfers from another SIMPLE IRA.

Article VI—Procedures for Withdrawals (The Employer will provide each employee with the procedures for withdrawals of contributions received by the financial institution selected by that employee, and that financial institution’s name and address (by attaching that information or inserting it in the space below) unless: (1) that financial institution’s procedures

are unavailable, or (2) that financial institution provides the procedures directly to the employee. See Employee Notification in the instructions.)

Article VII—Effective Date

This SIMPLE IRA plan is effective				. See
instructions.
*	*	*	*	*

Name of Employer		By:	Signature	Date

Address of Employer		Name and title

Form 5304-SIMPLE (Rev. 3-2012)

Page 3

Model Notification to Eligible Employees

I.Opportunity to Participate in the SIMPLE IRA Plan

You are eligible to make salary reduction contributions to theSIMPLE IRA

plan. This notice and the attached summary description provide you with information that you should consider before you decide whether to start, continue, or change your salary reduction agreement.

II.Employer Contribution Election


For the		calendar year, the Employer elects to contribute to your SIMPLE IRA (employer must select either (1), (2), or (3)):
(1)	A matching contribution equal to your salary reduction contributions up to a limit of 3% of your compensation for the year;
(2)	A matching contribution equal to your salary reduction contributions up to a limit of				% (employer must insert a
number from 1 to 3 and is subject to certain restrictions) of your compensation for the				year; or
(3)	A nonelective contribution equal to 2% of your compensation for the year (limited to compensation of $250,000*) if you are an
employee who makes at least $			(employer must insert an amount that is $5,000 or less) in compensation for
the year.
the year.

III.Administrative Procedures

To start or change your salary reduction contributions, you must complete the salary reduction agreement and return it to

		(employer should designate a place or
individual by	(employer should insert a date that is not less than 60	days after notice is given).

IV. Employee Selection of Financial Institution

You must select the financial institution that will serve as the trustee, custodian, or issuer of your SIMPLE IRA and notify your Employer of your selection.

Model Salary Reduction Agreement

I.Salary Reduction Election

Subject to the requirements of the SIMPLE IRA plan of								(name of
employer) I authorize		% or $			(which equals		% of my current rate of pay) to be withheld from

my pay for each pay period and contributed to my SIMPLE IRA as a salary reduction contribution.

II.Maximum Salary Reduction

I understand that the total amount of my salary reduction contributions in any calendar year cannot exceed the applicable amount for that year. See instructions.

III.Date Salary Reduction Begins

I understand that my salary reduction contributions will start as soon as permitted under the SIMPLE IRA plan and as soon as

administratively feasible or, if later,. (Fill in the date you want the salary reduction contributions to begin. The date must be after you sign this agreement.)

IV. Employee Selection of Financial Institution

I select the following financial institution to serve as the trustee, custodian, or issuer of my SIMPLE IRA.

Name of financial institution

Address of financial institution

SIMPLE IRA account name and number

I understand that I must establish a SIMPLE IRA to receive any contributions made on my behalf under this SIMPLE IRA plan. If the information regarding my SIMPLE IRA is incomplete when I first submit my salary reduction agreement, I realize that it must be completed by the date contributions must be made under the SIMPLE IRA plan. If I fail to update my agreement to provide this information by that date, I understand that my Employer may select a financial institution for my SIMPLE IRA.

V.Duration of Election

This salary reduction agreement replaces any earlier agreement and will remain in effect as long as I remain an eligible employee under the SIMPLE IRA plan or until I provide my Employer with a request to end my salary reduction contributions or provide a new salary reduction agreement as permitted under this SIMPLE IRA plan.

Signature of employee

Date

*This is the amount for 2012. For later years, the limit may be increased for cost-of-living adjustments. The IRS announces the increase, if any, in a news release, in the Internal Revenue Bulletin, and on the IRS website at IRS.gov.

Form 5304-SIMPLE (Rev. 3-2012)

Page 4

General Instructions

Section references are to the Internal Revenue Code unless otherwise noted.

Purpose of Form

Form 5304-SIMPLE is a model Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) plan document that an employer may use to establish a SIMPLE IRA plan described in section 408(p), under which each eligible employee is permitted to select the financial institution for his or her

SIMPLE IRA.

These instructions are designed to assist in the establishment and administration of the SIMPLE IRA plan. They are not intended to supersede any provision in the SIMPLE IRA plan.

Do not file Form 5304-SIMPLE with the IRS. Instead, keep it with your records.

For more information, see Pub. 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans), and Pub. 590, Individual Retirement Arrangements (IRAs).

Note. If you used the March 2002, August 2005, or September 2008 version of Form 5304-SIMPLE to establish a model Savings Incentive Match Plan, you are not required to use this version of the form.

Which Employers May

Establish and Maintain a

SIMPLE IRA Plan?

To establish and maintain a SIMPLE IRA plan, you must meet both of the following requirements:

1.Last calendar year, you had no more than 100 employees (including self-employed individuals) who earned $5,000 or more in compensation from you during the year. If you have a SIMPLE IRA plan but later exceed this 100-employee limit, you will be treated as meeting the limit for the 2 years following the calendar year in which you last satisfied the limit.

2.You do not maintain during any part of the calendar year another qualified plan with respect to which contributions are made, or benefits are accrued, for service in the calendar year. For this purpose, a qualified plan (defined in section 219(g)(5)) includes a qualified pension plan, a profit-sharing plan, a stock bonus plan, a qualified annuity plan, a tax-sheltered annuity plan, and a simplified employee pension (SEP) plan. A qualified plan that only covers employees covered under a collective bargaining agreement for which retirement benefits were the subject of good faith bargaining is disregarded if these employees are excluded from

participating in the SIMPLE IRA plan. If the failure to continue to satisfy the

100-employee limit or the one-plan rule described in 1 and 2 above is due to an acquisition or similar transaction involving your business, special rules apply. Consult your tax advisor to find out if you can still maintain the plan after the transaction.

Certain related employers (trades or businesses under common control) must be treated as a single employer for purposes of the SIMPLE IRA requirements. These are: (1) a controlled group of corporations under section 414(b); (2) a partnership or sole proprietorship under common control under section 414(c); or (3) an affiliated service group under section 414(m). In addition, if you have leased employees required to be treated as your own employees under the rules of section 414(n), then you must count all such leased employees for the requirements listed above.

What Is a SIMPLE IRA Plan?

A SIMPLE IRA plan is a written arrangement that provides you and your employees with an easy way to make contributions to provide retirement income for your employees. Under a SIMPLE IRA plan, employees may choose whether to make salary reduction contributions to the SIMPLE IRA plan rather than receiving these amounts as part of their regular compensation. In addition, you will contribute matching or nonelective contributions on behalf of eligible employees (see Employee Eligibility Requirements below and Contributions later). All contributions under this plan will be deposited into a SIMPLE individual retirement account or annuity established for each eligible employee with the financial institution selected by him or her.

When To Use Form 5304-SIMPLE

A SIMPLE IRA plan may be established by using this Model Form or any other document that satisfies the statutory requirements.

Do not use Form 5304-SIMPLE if:

1.You want to require that all SIMPLE IRA plan contributions initially go to a financial institution designated by you. That is, you do not want to permit each of your eligible employees to choose a financial institution that will initially receive contributions. Instead, use Form 5305-SIMPLE, Savings Incentive Match Plan for Employees of Small Employers (SIMPLE)—for Use With a Designated Financial Institution;

2.You want employees who are nonresident aliens receiving no earned income from you that is income from sources within the United States to be eligible under this plan; or

3.You want to establish a SIMPLE 401(k) plan.

Completing Form 5304-SIMPLE

Pages 1 and 2 of Form 5304-SIMPLE contain the operative provisions of your SIMPLE IRA plan. This SIMPLE IRA plan is considered adopted when you have completed all applicable boxes and blanks and it has been executed by you.

The SIMPLE IRA plan is a legal document with important tax consequences for you and your employees. You may want to consult with your attorney or tax advisor before adopting this plan.

Employee Eligibility Requirements (Article I)

Each year for which this SIMPLE IRA plan is effective, you must permit salary reduction contributions to be made by all of your employees who are reasonably expected to receive at least $5,000 in compensation from you during the year, and who received at least $5,000 in compensation from you in any 2 preceding years. However, you can expand the group of employees who are eligible to participate in the SIMPLE IRA plan by completing the options provided in Article I, items 1a and 1b. To choose full eligibility, check the box in Article I, item 1a. Alternatively, to choose limited eligibility, check the box in Article I, item 1b, and then insert “$5,000” or a lower compensation amount (including zero) and “2” or a lower number of years of service in the blanks in (i) and (ii) of Article I, item 1b.

In addition, you can exclude from participation those employees covered under a collective bargaining agreement for which retirement benefits were the subject of good faith bargaining. You may do this by checking the box in Article I, item 2. Under certain circumstances, these employees must be excluded. See Which Employers May Establish and Maintain a SIMPLE IRA Plan? above.

Salary Reduction Agreements (Article II)

As indicated in Article II, item 1, a salary reduction agreement permits an eligible employee to make a salary reduction election to have his or her compensation for each pay period reduced by a percentage (expressed as a percentage or dollar amount). The total amount of

Form 5304-SIMPLE (Rev. 3-2012)

Page 5

the reduction in the employee’s compensation cannot exceed the applicable amount for any calendar year. The applicable amount is $11,500 for 2012. After 2012, the $11,500 amount may be increased for cost-of-living adjustments. In the case of an eligible employee who is 50 or older by the end of the calendar year, the above limitation is increased by $2,500 for 2012. After 2012, the $2,500 amount may be increased for cost-of-living adjustments.

Timing of Salary Reduction Elections

For any calendar year, an eligible employee may make or modify a salary reduction election during the 60-day period immediately preceding January 1 of that year. However, for the year in which the employee becomes eligible to make salary reduction contributions, the period during which the employee may make or modify the election is a 60-day period that includes either the date the employee becomes eligible or the day before.

You can extend the 60-day election periods to provide additional opportunities for eligible employees to make or modify salary reduction elections using the blank in Article II, item 2b. For example, you can provide that eligible employees may make new salary reduction elections or modify prior elections for any calendar quarter during the 30 days before that quarter.

You may use the Model Salary Reduction Agreement on page 3 to enable eligible employees to make or modify salary reduction elections.

Employees must be permitted to terminate their salary reduction elections at any time. They may resume salary reduction contributions for the year if permitted under Article II, item 2b. However, by checking the box in Article II, item 2d, you may prohibit an employee who terminates a salary reduction election outside the normal election cycle from resuming salary reduction contributions during the remainder of the calendar year.

Contributions (Article III)

Only contributions described below may be made to this SIMPLE IRA plan. No additional contributions may be made.

Salary Reduction Contributions

As indicated in Article III, item 1, salary reduction contributions consist of the amount by which the employee agrees to reduce his or her compensation. You must contribute the salary reduction contributions to the financial institution selected by each eligible employee.

Matching Contributions

In general, you must contribute a matching contribution to each eligible employee’s SIMPLE IRA equal to the employee’s salary reduction contributions. This matching contribution cannot exceed 3% of the employee’s compensation. See Definition of Compensation, below.

You may reduce this 3% limit to a lower percentage, but not lower than 1%. You cannot lower the 3% limit for more than 2 calendar years out of the 5-year period ending with the calendar year the reduction is effective.

Note. If any year in the 5-year period described above is a year before you first established any SIMPLE IRA plan, you will be treated as making a 3% matching contribution for that year for purposes of determining when you may reduce the employer matching contribution.

To elect this option, you must notify the employees of the reduced limit within a reasonable period of time before the applicable 60-day election periods for the year. See Timing of Salary Reduction Elections above.

Nonelective Contributions

Instead of making a matching contribution, you may, for any year, make a nonelective contribution equal to 2% of compensation for each eligible employee who has at least $5,000 in compensation for the year.

Nonelective contributions may not be based on more than $250,000* of compensation.

To elect to make nonelective contributions, you must notify employees within a reasonable period of time before the applicable 60-day election periods for such year. See Timing of Salary Reduction Elections above.

Note. Insert “$5,000” in Article III, item 2b(i) to impose the $5,000 compensation requirement. You may expand the group of employees who are eligible for nonelective contributions by inserting a compensation amount lower than $5,000.

Effective Date (Article VII)

Insert in Article VII the date you want the provisions of the SIMPLE IRA plan to become effective. You must insert January 1 of the applicable year unless this is the first year for which you are adopting any SIMPLE IRA plan. If this is the first year for which you are adopting a SIMPLE IRA plan, you may insert any date between January 1 and October 1, inclusive of the applicable year.

Additional Information

Timing of Salary Reduction Contributions

The employer must make the salary reduction contributions to the financial institution selected by each eligible employee for his or her SIMPLE IRA no later than the 30th day of the month following the month in which the amounts would otherwise have been payable to the employee in cash.

The Department of Labor has indicated that most SIMPLE IRA plans are also subject to Title I of the Employee Retirement Income Security Act of 1974 (ERISA). Under Department of Labor regulations at 29 CFR 2510.3-102, salary reduction contributions must be made to each participant’s SIMPLE IRA as of the earliest date on which those contributions can reasonably be segregated from the employer’s general assets, but in no event later than the 30-day deadline described previously.

Definition of Compensation

“Compensation” means the amount described in section 6051(a)(3) (wages, tips, and other compensation from the employer subject to federal income tax withholding under section 3401(a)), and amounts paid for domestic service in a private home, local college club, or local chapter of a college fraternity or sorority. Usually, this is the amount shown in box 1 of Form W-2, Wage and Tax Statement. For further information, see Pub. 15, (Circular E), Employer’s Tax Guide. Compensation also includes the salary reduction contributions made under this plan, and, if applicable, compensation deferred under a section 457 plan. In determining an employee’s compensation for prior years, the employee’s elective deferrals under a section 401(k) plan, a SARSEP, or a section 403(b) annuity contract are also included in the employee’s compensation.

For self-employed individuals, compensation means the net earnings from self-employment determined under section 1402(a), without regard to section 1402(c)(6), prior to subtracting any contributions made pursuant to this SIMPLE IRA plan on behalf of the individual.

Employee Notification

You must notify each eligible employee prior to the employee’s 60-day election period described above that he or she can make or change salary reduction elections and select the financial institution that will serve as the trustee, custodian, or

*This is the amount for 2012. For later years, the limit may be increased for cost-of-living adjustments. The IRS announces the increase, if any, in a news release, in the Internal Revenue Bulletin, and on the IRS’s website at IRS.gov.

Form 5304-SIMPLE (Rev. 3-2012)

Page 6

issuer of the employee’s SIMPLE IRA. In this notification, you must indicate whether you will provide:

1.A matching contribution equal to your employees’ salary reduction contributions up to a limit of 3% of their compensation;

2.A matching contribution equal to your employees’ salary reduction contributions subject to a percentage limit that is between 1 and 3% of their compensation; or

3.A nonelective contribution equal to 2% of your employees’ compensation.

You can use the Model Notification to Eligible Employees earlier to satisfy these employee notification requirements for this SIMPLE IRA plan. A Summary Description must also be provided to eligible employees at this time. This summary description requirement may be satisfied by providing a completed copy of pages 1 and 2 of Form 5304-SIMPLE (including the information described in

Article VI—Procedures for Withdrawals).

If you fail to provide the employee notification (including the summary description) described above, you will be liable for a penalty of $50 per day until the notification is provided. If you can show that the failure was due to reasonable cause, the penalty will not be imposed.

If the financial institution’s name, address, or withdrawal procedures are not available at the time the employee must be given the summary description, you must provide the summary description without this information. In that case, you will have reasonable cause for not including this information in the summary description, but only if you ensure that it is provided to the employee as soon as administratively feasible.

Reporting Requirements

You are not required to file any annual information returns for your SIMPLE IRA plan, such as Form 5500, Annual Return/Report of Employee Benefit Plan, or Form 5500-EZ, Annual Return of One-Participant (Owners and Their Spouses) Retirement Plan. However, you must report to the IRS which eligible employees are active participants in the SIMPLE IRA plan and the amount of your employees’ salary reduction contributions to the SIMPLE IRA plan on Form W-2. These contributions are subject to social security, Medicare, railroad retirement, and federal unemployment tax.

Deducting Contributions

Contributions to this SIMPLE IRA plan are deductible in your tax year containing the end of the calendar year for which the contributions are made.

Contributions will be treated as made for a particular tax year if they are made for that year and are made by the due date (including extensions) of your income tax return for that year.

Summary Description

Each year the SIMPLE IRA plan is in effect, the financial institution for the SIMPLE IRA of each eligible employee must provide the employer the information described in section 408(l)(2)(B). This requirement may be satisfied by providing the employer a current copy of Form 5304-SIMPLE (including instructions) together with the financial institution’s procedures for withdrawals from SIMPLE IRAs established at that financial institution, including the financial institution’s name and address. The summary description must be received by the employer in sufficient time to comply with the Employee Notification requirements earlier.

There is a penalty of $50 per day imposed on the financial institution for each failure to provide the summary description described above. However, if the failure was due to reasonable cause, the penalty will not be imposed.

Paperwork Reduction Act Notice. You are not required to provide the information requested on a form that is subject to the Paperwork Reduction Act unless the form displays a valid OMB control number. Books or records relating to a form or its instructions must be retained as long as their contents may become material in the administration of any Internal Revenue law. Generally, tax returns and return information are confidential, as required by section 6103.

The time needed to complete this form will vary depending on individual circumstances. The estimated average time is:

Recordkeeping . .	.	.	3 hr., 38 min.
Learning about the
law or the form . .	.	.	2 hr., 26 min.
Preparing the form	.	.	. . 47 min.

If you have comments concerning the accuracy of these time estimates or suggestions for making this form simpler, we would be happy to hear from you. You can write to the Internal Revenue Service, Tax Products Coordinating Committee, SE:W:CAR:MP:T:M:S, 1111 Constitution Ave. NW, IR-6526, Washington, DC 20224. Do not send this form to this address. Instead, keep it with your records.

Click for IRS 5304-SIMPLE File

File Breakdown

Fact Name	Description
Purpose	The IRS 5304-SIMPLE form is used for establishing a Savings Incentive Match Plan for Employees (SIMPLE IRA).
Eligibility	Employers with 100 or fewer employees who earned at least $5,000 in the previous year can adopt this plan.
Employee Contributions	Employees can contribute a portion of their salary to the SIMPLE IRA, up to a specified limit each year.
Employer Contributions	Employers must either match employee contributions dollar-for-dollar up to 3% of their pay or contribute a flat 2% of eligible employee pay.
Tax Benefits	Contributions to a SIMPLE IRA are made on a pre-tax basis, reducing taxable income for employees.
Withdrawal Rules	Withdrawals before age 59½ may incur a 10% penalty, but the penalty increases to 25% if withdrawn within the first two years of participation.
Filing Requirements	Employers need to file IRS Form 5305-SIMPLE to establish the plan and comply with annual reporting.
Governing Laws	The SIMPLE IRA plan is governed by Internal Revenue Code Section 408(p) and must comply with applicable state laws.

Guide to Using IRS 5304-SIMPLE

Upon receiving the IRS 5304-SIMPLE form, you must complete it accurately to ensure compliance with IRS requirements. Follow these steps carefully to fill out the form correctly.

Begin with the top section of the form. Enter the name of your employer as it appears in your official documents.
Next, provide your employer identification number (EIN). This number is essential for identifying your business in tax matters.
Fill in the address of your employer. Ensure that the address is complete and includes the street, city, state, and ZIP code.
Indicate the date when the SIMPLE IRA plan began. This date should align with your records to avoid discrepancies.
Specify the plan year. This defines the period for which the contributions are made each year.
Choose the compensation methods. Select the one that will apply to your employees, either a percentage of compensation or a flat dollar amount.
Outline the contribution amounts. Clearly state the annual contribution limits for both the employer and the employees.
Determine the eligible employees. List who qualifies for the SIMPLE IRA plan based on your criteria.
Finally, review the form for accuracy. Ensure all sections are filled out completely and correctly. Once reviewed, sign and date the form at the designated area.

Get Answers on IRS 5304-SIMPLE

What is the IRS 5304-SIMPLE form?

The IRS 5304-SIMPLE form is a document used by small businesses to establish a Savings Incentive Match Plan for Employees (SIMPLE IRA) for their employees. This form outlines the eligibility and terms of the retirement plan, making it easier for employers and employees to understand the plan's structure and benefits.

Who is eligible to use the IRS 5304-SIMPLE form?

Employers with 100 or fewer employees who earned at least $5,000 during the preceding calendar year can use the IRS 5304-SIMPLE form. This form is particularly beneficial for small businesses looking to offer retirement benefits without the complexities of larger plans.

What are the main benefits of a SIMPLE IRA?

A SIMPLE IRA provides several advantages for both employers and employees:

Low administrative costs compared to traditional retirement plans.
Self-directed investment choices for employees.
Employers can contribute matching funds, fostering employee retention.
Tax advantages, including tax-deferred growth for contributions.

What information is required to complete the IRS 5304-SIMPLE form?

To complete the IRS 5304-SIMPLE form, employers must provide several details, including:

The name and address of the employer.
The name and address of the financial institution where the SIMPLE IRA will be established.
The plan's effective date.
Eligibility requirements for employees.

When must the IRS 5304-SIMPLE form be filed?

The IRS 5304-SIMPLE form must be provided to employees by the start of the plan year. For new plans, this means that employees need to receive the form by October 1 of the calendar year in which the plan is initiated. The timing ensures that employees understand their options before contributing to the retirement plan.

How do employee contributions work under a SIMPLE IRA?

Employees can choose to make pre-tax contributions to their SIMPLE IRA through payroll deductions. For the tax year 2023, the contribution limit is $15,500, with a catch-up contribution of $3,500 allowed for employees aged 50 and older. This enables employees to save more as they approach retirement age.

Are employer contributions required?

Yes, employers must contribute to their employees’ SIMPLE IRAs. They have two options for contributions:

Matching contributions of up to 3% of each employee's compensation.
A non-elective contribution of 2% of each eligible employee’s compensation, regardless of employee contributions.

Can employees withdraw funds from their SIMPLE IRA?

Employees can withdraw funds from their SIMPLE IRA, but it is important to note that withdrawals within the first two years of participation may incur a 25% penalty if taken before age 59½. After two years, the penalty reduces to 10%. Taxes will also apply to withdrawals since contributions are made on a pre-tax basis.

What happens if an employer does not file the IRS 5304-SIMPLE form?

If an employer neglects to provide the IRS 5304-SIMPLE form, it could lead to misunderstandings about the retirement plan's rules. Employees may miss out on retirement savings opportunities, and the employer may face challenges in meeting compliance requirements. It is vital for employers to ensure that employees receive the form accurately and timely.

Where can I find the IRS 5304-SIMPLE form?

The IRS 5304-SIMPLE form can be obtained directly from the IRS website. Typically, it is available in a downloadable PDF format, making it easy to access for both employers and employees. Additionally, many financial institutions that offer SIMPLE IRAs may provide the form as part of their onboarding materials.

Common mistakes

When preparing the IRS 5304-SIMPLE form, many individuals make critical errors that can ultimately delay processing or lead to tax complications. Understanding these common mistakes is essential for accurate completion. First and foremost, many people overlook the importance of providing precise business information. While it might seem trivial, errors in the name or address of the business can create significant confusion and may result in complications when the IRS attempts to process the form.

Another frequent mistake occurs when individuals fail to properly identify the eligible employees. The IRS requires that certain criteria are met to determine whether an employee qualifies to participate in a SIMPLE IRA plan. Neglecting to review eligibility might inadvertently exclude employees who should have been included, thus leading to issues with compliance later on.

Additionally, individuals often misinterpret the contribution limits associated with SIMPLE IRAs. The form requires that specific amounts be filled in. Confusion or neglect in this area can cause over-contributions or under-contributions, leading not only to potential penalties but also to angry employees who might feel shortchanged.

Moreover, it is not uncommon for people to forget to sign the form. The signature is a vital component, as it signifies that the information provided is accurate and complete. A missing signature can result in the IRS rejecting the filing, leading to unnecessary delays or complications that could have been easily avoided.

Finally, a lack of attention to detail while reading the instructions often presents a significant hurdle. The IRS provides specific guidelines that clarify what is necessary for the form’s completion. Ignoring these instructions may result in incomplete forms or misfiled information. Always take the time required to review the instructions thoroughly.

Documents used along the form

The IRS 5304-SIMPLE form is an important document for businesses wishing to set up a Savings Incentive Match Plan for Employees (SIMPLE IRA). Several other forms and documents are often utilized in conjunction with the 5304-SIMPLE to ensure compliance and facilitate the plan's proper operation. Below is a list of key forms and documents that should be kept in mind.

Form 5305-SIMPLE: This is an alternate form that an employer can use to establish a SIMPLE IRA plan. It outlines the plan's terms and conditions for employee contributions.
Form 1040: This is the individual income tax return form used by employees to report earnings. Employee contributions to a SIMPLE IRA can be deducted on this form.
Form 5498: Financial institutions use this form to report contributions made to an IRA. It helps both the IRS and the account holder keep track of contributions and account valuations.
Form W-2: This form reports an employee's annual wages and the amount withheld for taxes. It's necessary to document any SIMPLE IRA contributions that have been deducted from employee salaries.
Plan Document: A written document describing the terms and conditions of the SIMPLE IRA plan. It guides employers and employees regarding the operation of the plan.
SIMPLE IRA Worksheet: This worksheet assists employers in calculating employee contributions and matching contributions. It ensures accurate reporting and understanding of the plan's contributions.
Annual Notice: Employers are required to provide this annual notice to employees to inform them about the SIMPLE IRA plan and their options regarding contributions.
Employer Adoption Agreement: This document is signed by the employer to officially adopt the SIMPLE IRA plan. It delineates the employer’s responsibilities and options in maintaining the plan.

These documents are integral in managing a SIMPLE IRA plan effectively. By understanding and utilizing them correctly, employers can ensure compliance with IRS regulations while providing valuable retirement benefits to their employees.

Similar forms

The IRS Form 5304-SIMPLE is primarily used for establishing a Savings Incentive Match Plan for Employees. Below is a list detailing ten documents that share similarities with this form, along with how they relate to the 5304-SIMPLE.

IRS Form 401(k): Both documents facilitate retirement savings for employees. They allow employers to offer tax-advantaged retirement plans to enhance employee benefits.
IRS Form 403(b): Like the 5304-SIMPLE, this form is designed for specific types of employees, such as those in educational or non-profit organizations, providing a retirement savings option.
IRS Form 457(b): This form also allows for tax-deferred contributions. Both forms cater to employees looking to save for retirement with favorable tax treatments.
IRS Form 8500: Though less common, it serves a similar purpose in promoting retirement savings among small business employees, focusing on savings incentives.
IRS Form 5305: This document establishes various types of retirement plans. Both forms are instrumental in creating employer-sponsored plans to help employees prepare for retirement.
IRS Form 8880: This form provides a credit for retirement savings contributions. It complements the SIMPLE plan, encouraging employees to contribute to their retirement savings.
IRS Form 5500: While it focuses on reporting and annual requirements for employee benefit plans, both forms play crucial roles in retirement plan administration.
IRS Form 5310: This is used for plan termination but is relevant for employers considering the future of their retirement plans, similar to the considerations involved in SIMPLE plans.
IRS Form 990: Nonprofits file this form to report on fiscal matters, including retirement plan expenses, reflecting the interests of both employee benefits and tax compliance.
IRS Form 2441: While focused on child and dependent care credits, this document highlights the IRS's approach to incentivizing employee benefits, aligning with the ethos of the SIMPLE plan.

Dos and Don'ts

When filling out the IRS 5304-SIMPLE form, it’s critical to approach the process with care to ensure that all information is accurate and complete. Below are some important dos and don’ts to keep in mind.

Do read the instructions carefully before starting. Understanding what is required can save time and prevent mistakes.
Do provide accurate information about your employer and employee contributions. Misinformation can lead to complications down the line.
Do double-check all entries for accuracy. Simple errors can lead to processing delays or issues with your retirement plan.
Do ensure that all required signatures are provided. An unsigned form may result in it being rejected.
Don’t rush through the form. Take your time to fill it out completely. Incomplete forms can be problematic.
Don’t ignore applicable deadlines. Submit your form in a timely manner to avoid penalties or missed opportunities.
Don’t hesitate to seek help if you’re unsure. Professional assistance can clarify complicated sections or requirements.

Misconceptions

The IRS 5304-SIMPLE form is an important document for employers looking to set up a SIMPLE IRA plan for their employees. However, there are several misconceptions about this form and its use. Here are nine common misunderstandings:

Anyone can use this form regardless of business size. This is incorrect. The SIMPLE IRA plan is specifically designed for small businesses with 100 or fewer employees. Larger businesses cannot use this form.
Submitting this form guarantees tax deductions. While establishing a SIMPLE IRA can help with tax-deferred savings, submitting the form does not automatically guarantee tax deductions for the employer.
Employees must contribute to the SIMPLE IRA. This is a misconception. While the plan encourages employee contributions, participation is voluntary. Employees can choose not to contribute.
Only the employer can contribute. Not true. Both employees and employers can make contributions to the SIMPLE IRA, striking a balance that benefits both parties.
All employees are eligible for the SIMPLE IRA. Eligibility requirements exist. Employees must have earned at least $5,000 in the preceding two years and expect to earn at least that much in the current year to qualify.
The SIMPLE IRA plan is permanent. In reality, businesses can terminate the SIMPLE IRA plan. However, there are specific steps and rules to follow if they choose to do so.
Filing the form is the only step necessary. This is misleading. Completing the IRS 5304-SIMPLE form is just one part of the entire process of setting up a SIMPLE IRA plan. Employers must also educate employees and comply with other IRS requirements.
There’s no need to notify employees about the plan. This is false. Employers are required to provide written notification to employees about the details of the SIMPLE IRA plan, including contribution limits and investment options.
Once the plan is set up, no further action is necessary. This misconception can lead to trouble. Ongoing management and annual evaluations of the plan are important to ensure compliance with IRS regulations and to keep employees informed.

Understanding these misconceptions clear the path to successfully managing a SIMPLE IRA plan. Knowledge empowers both employers and employees to make informed decisions about their retirement options.

Key takeaways

The IRS 5304-SIMPLE form is an essential document for establishing a SIMPLE IRA plan. Understanding how to properly fill it out and utilize it can empower both plan administrators and employees. Here are some key takeaways regarding this form:

Eligibility Requirements: Only small businesses with 100 or fewer employees who earned $5,000 or more during the preceding calendar year can establish a SIMPLE IRA plan.
Clear Instructions: The form provides straightforward instructions. Make sure to read and follow these to avoid any mistakes in completing the form.
Annual Form Submission: Submit the form to the IRS every year to keep your SIMPLE IRA plan in compliance and maintain its tax advantages.
Employer Contributions: Employers must either match employee contributions up to 3% of compensation or make a 2% non-elective contribution, which is automatically given to all eligible employees.
Employee Participation: It’s crucial to inform employees about the SIMPLE IRA plan and their options for contributions. Employees should understand how to make contributions to benefit from the plan.
Withdrawal Rules: Be aware that there are specific rules surrounding withdrawals from a SIMPLE IRA. Employees should be informed about possible penalties for early withdrawal.
Plan Amendments: Any changes to the plan might require an updated version of the 5304-SIMPLE form. Stay informed about necessary amendments to ensure compliance.
Record Keeping: Good record-keeping practices affect a successful SIMPLE IRA plan. Document all contributions and employee communications for future reference.