How the SECURE Act 2.0 Makes it Easier to Save More for Retirement with SIMPLE Plans.

If you’re looking for a simple way to save for retirement, a Savings Incentive Match Plan for Employees (SIMPLE) may be the answer. As the name suggests, a SIMPLE plan is easy to set up and manage, with contribution limits that are indexed annually for inflation. The SECURE Act 2.0 makes it easier for SIMPLE plan participants to save more for retirement.

A company cannot have more than 100 employees, including all employees who earned at least $5,000 in the previous year. Employees who have received at least $5,000 in compensation in the previous two years. Expect to receive at least that amount in the current year are eligible to participate in the plan. Contribution limits for 2023 are $15,500, with a catch-up contribution of up to $3,500 for employees aged 50 and up.

In 2024, the catch-up contribution limit for a SIMPLE plan will increase by 10%. Under SECURE Act, 2.0 for employers with no more than 25 employees. If an employer makes a 4% matching contribution or a 3% employer contribution, they are allowed to provide higher limits for employees within the range of 26-100. The new law also creates a new SIMPLE plan catch-up contribution limit for those aged 60–63 years, beginning in 2025.

It’s important to note that contributions to SIMPLE plans vest immediately. Meaning, employees can withdraw funds from the plan at any time, subject to an early withdrawal penalty. Withdrawing funds before the age of 59½ incurs a penalty tax. If they don’t fall under one of the tax law exceptions.

During the two years of participation in a SIMPLE plan, the standard 10% penalty for early withdrawal qualified plan increased 25%. However, once the two-year period has passed, the penalty returns to the regular 10% amount.

Finally, the required minimum distribution (RMD) rules apply to SIMPLEs. Starting in 2023, the SECURE Act will increase the age requirement for minimum distribution withdrawals to 73. Which is one year more than the previous requirement of 72. In 2033, the age requirement will increase to 75. 

Our short blog articles can only partially cover all the rules and nuances. If you’re not familiar with taxation laws or the SIMPLE plan, it’s always recommended to seek professional assistance. Tax laws are complex, and mistakes can be costly. Hiring a tax professional can help you navigate the process and ensure compliance. Similarly, the SIMPLE plan has specific rules and requirements that a professional can help you understand and implement correctly. Ultimately, investing in professional assistance can save you time, money, and stress in the long run. Consider trying the IfindTaxPro marketplace by posting your project and signing up here. 

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