Blank IRS 5304-SIMPLE Template

The IRS 5304-SIMPLE form is used by employers to establish a SIMPLE IRA plan for their employees. This form allows employees to choose how much they want to contribute to their retirement savings. If you are ready to fill out the form, please click the button below.

Article Structure

The IRS 5304-SIMPLE form plays a crucial role for small businesses looking to establish a SIMPLE IRA plan, which stands for Savings Incentive Match Plan for Employees Individual Retirement Account. This form is designed to provide essential information about the plan to employees, ensuring they understand their options for retirement savings. By using this form, employers can outline the terms of the SIMPLE IRA plan, including eligibility criteria, contribution limits, and the matching contributions that employers are required to make. It also serves as a tool for employees to make informed decisions about their retirement savings, as it details how they can contribute to their accounts and the benefits of participating in the plan. Proper completion and distribution of the IRS 5304-SIMPLE form are vital for compliance with IRS regulations and for fostering a transparent relationship between employers and employees regarding retirement benefits. Understanding this form is essential for both employers and employees to maximize the advantages of a SIMPLE IRA plan.

Form Sample

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.

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Document Specifications

Fact Name	Description
Purpose	The IRS 5304-SIMPLE form is used by employers to establish a SIMPLE IRA plan for their employees.
Eligibility	Employers with 100 or fewer employees who earned $5,000 or more in the preceding year can use this form.
Contribution Limits	For 2023, employees can contribute up to $15,500, with an additional $3,500 catch-up contribution for those aged 50 and older.
Filing Requirement	Employers must provide employees with the completed form and any necessary information about the plan.
State-Specific Forms	Some states may have additional requirements; for example, California requires compliance with state labor laws.
Deadline	The form must be established by October 1 of the year in which contributions will be made.
Tax Benefits	Contributions to a SIMPLE IRA are tax-deductible for employers, and employees can defer taxes on their contributions until withdrawal.

Steps to Filling Out IRS 5304-SIMPLE

Completing the IRS 5304-SIMPLE form is essential for setting up a SIMPLE IRA plan. After filling out this form, you will need to submit it to the IRS and provide copies to your employees. Ensure all information is accurate to avoid delays.

Begin by entering the name of your business at the top of the form.
Provide the Employer Identification Number (EIN) for your business.
Fill in the address of your business, including city, state, and ZIP code.
Indicate the tax year for which the form is being filled out.
In the section for employee eligibility, specify the criteria for employee participation in the SIMPLE IRA plan.
Detail the contribution limits for employee and employer contributions.
Provide information about the financial institution that will hold the SIMPLE IRA accounts.
Sign and date the form to certify that the information provided is accurate.

More About IRS 5304-SIMPLE

What is the IRS 5304-SIMPLE form?

The IRS 5304-SIMPLE form is used by employers to set up a SIMPLE IRA plan for their employees. SIMPLE stands for Savings Incentive Match Plan for Employees. This form outlines the plan's terms, including employee contribution limits and employer matching contributions. It’s designed for small businesses with 100 or fewer employees, making it a popular choice for those looking to offer retirement benefits without the complexity of larger plans.

Who is eligible to participate in a SIMPLE IRA plan?

Employees who earned at least $5,000 during any two preceding years and are expected to earn at least that amount in the current year can participate in a SIMPLE IRA plan. Employers must also meet specific criteria, such as having 100 or fewer employees who received at least $5,000 in compensation during the previous calendar year. This makes the plan accessible for many small business employees.

What are the contribution limits for a SIMPLE IRA?

For 2023, employees can contribute up to $15,500 to their SIMPLE IRA. If an employee is 50 years old or older, they can make an additional catch-up contribution of $3,500, bringing the total possible contribution to $19,000. Employers are required to either match employee contributions up to 3% of their compensation or provide a flat 2% contribution for all eligible employees, regardless of whether they contribute.

How do employers submit the IRS 5304-SIMPLE form?

Employers must complete the IRS 5304-SIMPLE form and provide it to their employees. This form does not need to be submitted to the IRS but should be kept on file as part of the plan documentation. Employers should also ensure that employees understand the plan's features and how to make contributions, as this information is crucial for participation.

Can employees withdraw funds from their SIMPLE IRA?

Yes, employees can withdraw funds from their SIMPLE IRA, but there are restrictions. Withdrawals made within the first two years of participation may be subject to a 25% penalty, while withdrawals after that period incur a 10% penalty if taken before age 59½. It's important for employees to understand these penalties and consider their long-term retirement goals before making withdrawals.

What happens if an employer decides to terminate the SIMPLE IRA plan?

If an employer decides to terminate the SIMPLE IRA plan, they must notify employees and provide them with information about their options. Employees can roll over their funds into another retirement account or withdraw the funds, but they should be aware of any tax implications. Employers must also ensure that all contributions are made up to the termination date and provide necessary documentation for the employees’ records.

Common mistakes

Failing to provide accurate employer information. Ensure that the name, address, and Employer Identification Number (EIN) are correct.
Not checking eligibility requirements. Confirm that both the employer and employees meet the qualifications for a SIMPLE IRA.
Incorrectly calculating contribution limits. Be aware of the annual contribution limits set by the IRS and adhere to them.
Omitting employee signatures. All employees must sign the form to indicate their acceptance of the SIMPLE IRA plan.
Not including the correct plan year. Specify the correct year for which the SIMPLE IRA plan applies.
Ignoring the deadline for submission. Submit the form by the deadline to ensure compliance and avoid penalties.
Providing incomplete information. Double-check all sections of the form to ensure that no fields are left blank.
Misunderstanding the employer's contribution options. Familiarize yourself with the two contribution methods available for SIMPLE IRAs.
Failing to keep copies of submitted forms. Retain a copy of the completed form for your records and future reference.
Not consulting a tax professional when needed. Seek guidance if uncertain about any part of the form or the SIMPLE IRA plan.

Documents used along the form

The IRS 5304-SIMPLE form is used by employers to establish a Savings Incentive Match Plan for Employees (SIMPLE) IRA. This plan allows employees to contribute to their retirement savings with matching contributions from their employer. Alongside this form, there are several other documents that are commonly utilized to ensure compliance and proper management of the SIMPLE IRA. Below is a list of five such documents, each serving a distinct purpose.

SIMPLE IRA Adoption Agreement: This document outlines the terms of the SIMPLE IRA plan and must be signed by both the employer and employees. It specifies details such as eligibility, contribution limits, and the matching formula.
SIMPLE IRA Plan Summary Description: This summary provides employees with essential information about the SIMPLE IRA plan. It explains how the plan works, the benefits of participation, and the rights and responsibilities of both the employer and employees.
IRS Form 5305-SIMPLE: This is an alternative form that can be used to establish a SIMPLE IRA. It is similar to the 5304-SIMPLE but is specifically designed for employers who want to set up the plan without offering a matching contribution.
Employee Salary Reduction Agreement: This document is signed by employees to indicate their decision to defer a portion of their salary into the SIMPLE IRA. It details the percentage or amount of salary that will be contributed.
Annual Contribution Limits Notice: Employers are required to inform employees of the annual contribution limits for SIMPLE IRAs. This notice helps ensure that employees are aware of how much they can contribute each year.

These documents work together to create a comprehensive framework for managing a SIMPLE IRA plan. They ensure that both employers and employees understand their roles and responsibilities, while also providing the necessary information to comply with IRS regulations. Proper use of these forms can lead to successful retirement planning for employees and a smooth administration process for employers.

Similar forms

The IRS 5304-SIMPLE form is a key document for employers who wish to establish a SIMPLE IRA plan for their employees. It serves as a notice to employees about the plan's features and benefits. Similar to this form is the IRS Form 5500. This document is used to report information about employee benefit plans, including retirement plans. While the IRS 5304-SIMPLE focuses on informing employees about the SIMPLE IRA, Form 5500 provides a broader overview of all employee benefits, ensuring compliance and transparency in reporting.

Another related document is the IRS Form 8880, which is used to claim the Retirement Savings Contributions Credit. This form is for individuals who contribute to retirement accounts, including SIMPLE IRAs. While the 5304-SIMPLE informs employees about their options, Form 8880 allows them to benefit financially from their contributions, making retirement savings more accessible.

The IRS Form 1040 is also relevant, as it serves as the standard individual income tax return form. Individuals who contribute to a SIMPLE IRA will report their contributions on this form. While the 5304-SIMPLE outlines the plan's specifics, Form 1040 is where individuals reflect their financial activities, including retirement savings, on their tax returns.

Form W-2 is another important document that relates to the IRS 5304-SIMPLE. This form reports an employee's annual wages and the amount of taxes withheld. Contributions made to a SIMPLE IRA may be reflected on the W-2, showing how much has been set aside for retirement. While the 5304-SIMPLE informs employees about the plan, the W-2 provides a tangible record of their financial contributions.

The IRS Form 5305-SEP is also similar, as it is used to establish a Simplified Employee Pension plan. Both forms facilitate retirement savings for employees, but the 5305-SEP is designed for self-employed individuals and small business owners. While the 5304-SIMPLE focuses on a specific type of retirement account, the 5305-SEP provides an alternative option for those looking to save for retirement.

Form 401(k) is yet another related document. This form is used for a 401(k) retirement plan, which is a popular employer-sponsored retirement savings plan. While the 5304-SIMPLE is specific to SIMPLE IRAs, the 401(k) offers a different structure and contribution limits. Both forms aim to encourage retirement savings, but they cater to different employer and employee needs.

The IRS Form 8881 is also noteworthy, as it allows small businesses to claim a credit for setting up retirement plans. This form can be utilized by employers who establish a SIMPLE IRA plan. While the 5304-SIMPLE informs employees about their retirement options, Form 8881 incentivizes employers to offer such plans, ultimately benefiting employees.

Form 1099-R is another document that complements the IRS 5304-SIMPLE. This form is used to report distributions from retirement plans, including SIMPLE IRAs. When employees withdraw funds from their SIMPLE IRAs, Form 1099-R provides essential information for tax purposes. The 5304-SIMPLE sets the stage for retirement savings, while the 1099-R captures the financial impact of those savings when distributions occur.

Lastly, the IRS Form 5307 is relevant as it is used for a plan that is not a prototype or volume submitter plan. This form is used to apply for a determination letter for a retirement plan. While the 5304-SIMPLE provides the necessary information for employees about their SIMPLE IRA, Form 5307 helps employers ensure that their plan complies with IRS regulations, further supporting the retirement savings framework.

Dos and Don'ts

When filling out the IRS 5304-SIMPLE form, it's important to follow certain guidelines to ensure accuracy and compliance. Here are five things you should and shouldn't do:

Do double-check all personal information for accuracy.
Do read the instructions carefully before starting.
Do keep a copy of the completed form for your records.
Don't leave any sections blank unless instructed.
Don't forget to sign and date the form before submission.

Misconceptions

Understanding the IRS 5304-SIMPLE form can be challenging, leading to various misconceptions. Here are nine common misunderstandings about this form, clarified for better comprehension.

It’s only for large businesses.
This is not true. The IRS 5304-SIMPLE form is designed for small businesses with 100 or fewer employees. It provides a simple way for employers to offer retirement savings plans.
All employees must participate.
Participation is not mandatory. Employees can choose whether or not to contribute to the SIMPLE IRA plan, giving them flexibility based on their financial situation.
Only full-time employees can participate.
This is a misconception. Part-time employees who meet certain criteria, such as earning at least $5,000 in any two preceding years, can also participate in the plan.
Employers cannot contribute to the plan.
On the contrary, employers are required to make contributions. They can choose between matching employee contributions or making a fixed contribution for all eligible employees.
Once established, the plan cannot be changed.
This is incorrect. Employers can amend their SIMPLE IRA plan, but changes must comply with IRS regulations and be communicated to employees.
Only one SIMPLE IRA plan can be established.
Employers can actually establish multiple SIMPLE IRA plans, provided they adhere to the rules and regulations governing these plans.
There are no tax benefits associated with the plan.
This is a misunderstanding. Contributions to a SIMPLE IRA are tax-deferred, meaning employees do not pay taxes on their contributions until they withdraw funds during retirement.
The form is only for retirement planning.
While primarily a retirement savings tool, the SIMPLE IRA can also serve as an important part of an overall financial strategy, helping employees save for various future needs.
Filing the form is overly complicated.
Many find the process straightforward. The form is designed to be user-friendly, allowing employers to easily set up and manage the retirement plan.

By addressing these misconceptions, individuals and employers can better understand the benefits and requirements of the IRS 5304-SIMPLE form, ensuring they make informed decisions about retirement savings options.

Key takeaways

When filling out and using the IRS 5304-SIMPLE form, it is essential to understand its purpose and requirements. Here are some key takeaways:

Eligibility: Only small businesses with 100 or fewer employees can establish a SIMPLE IRA plan using this form.
Employee Participation: Employees must be allowed to participate in the plan if they earned at least $5,000 in any two preceding years and expect to earn that amount in the current year.
Contribution Limits: For 2023, the maximum employee contribution is $15,500, with an additional catch-up contribution of $3,500 for those aged 50 and older.
Employer Contributions: Employers must either match employee contributions up to 3% of their compensation or contribute a flat 2% for all eligible employees, regardless of their participation.
Form Submission: The completed IRS 5304-SIMPLE form must be provided to employees and filed with the IRS to establish the SIMPLE IRA plan.
Annual Reporting: Employers are required to report contributions and provide employees with a Form 5498 each year, detailing their contributions to the SIMPLE IRA.