Fix It Guide - Who May Adopt a SIMPLE IRA Plan

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Only an employer with 100 or fewer employees, who earned at least $5,000 in compensation for the prior year may adopt a SIMPLE IRA plan. You should determine whether you're eligible to sponsor a SIMPLE IRA plan before establishing one. Make sure you count all employees for the 100-employee rule, including full-time, part-time, seasonal, and leased employees who earned more than $5,000 in the prior year. If you established a SIMPLE IRA plan and your business grew to more than 100 eligible employees, the rules allow a grace period -- generally, two calendar years following the year in which the 100-employee limitation was satisfied. During the grace period, you may still contribute for your employees. At the same time, you may set up another type of retirement plan, but only after the year of the last contributions to the SIMPLE IRA plan. If you continue to have a SIMPLE IRA plan for more than the two-year grace period, you should cease making any new contributions to the plan. If the plan is not under examination, you can file a VCP application to correct the mistake, using our Voluntary Correction Program. The fee to correct this type of mistake through VCP is $250.