Web Design, Programming, and Business

How to set up a SIMPLE IRA for your small business

First off, congratulations! It’s a huge step to offer a retirement plan for your employees and it’s a great addition to your compensation package. This tells your workers that you care about their future and that you want them to succeed. You know that if you take care of your team, they’ll take care of you!

What is a SIMPLE IRA?

The SIMPLE IRA, short for Savings Incentive Match Plan for Employees, is an easy to setup retirement plan for businesses with 100 employees or less. It offers some flexibility but does require employer contributions.

Features of the SIMPLE IRA

  • One of the most distinguishing features of the SIMPLE is that employers must elect to either match contributions up to 3% or contribute a straight 2% to all employees. Whichever choice you make, it has to be the same for all your employees: you can’t match some and give the 2% non-matching contribution to others. At our web design company, we put this choice up for a vote and all of our employees wanted to match up to the 3% so we went with that.
  • If you go with the 2% contribution, that’s an additional 2% that you’re giving them on top of their wages. It’s a great way to help your workers, without them to make a contribution from their wages.
  • The SIMPLE IRA is a tax-deferred plan, meaning that no taxes are paid on the money they contribute not but will be paid after retirement after taken out.
  • To be eligible, employees must have made $5,000 compensation in any 2 preceding years and expect to receive at least $5,000 this year (You can set a smaller amount in your paperwork).
  • As of 2020, employees can defer up to $13,5000 per year. Employees 50 or over can contribute an additional $3000 annually.

Sounds like a 401K, what’s the difference?

There’s several key differences as outlined in this article. The main differences are with a 401k, any sized employer is eligible, higher employer contributions can be made (up to 25%), employees can defer up to $19,500 (2020), but there is more expense and it takes more time to administer.

Simply put (pun!), for a small business, the SIMPLE IRA would be a better choice over a standard 401k plan since it’s easier, quicker, and cheaper to administrator. So let’s go over how to do that.

Where to get a SIMPLE IRA for your business

Most of the major investment firms can help you set up a SIMPLE IRA including Merrill, TD Ameritrade, ally invest, Fidelity, Vanguard, and Charles Schwab. Not all financial firms offer the SIMPLE yet so if you’re already working with a financial firm, you’ll want to check their website.

Since we went with Charles Schwab, let me share the step-by-step process of setting up a SIMPLE IRA with them. It would probably be a similar experience with other financial institutions. This is the process for employers.

Setting up the SIMPLE IRA plan with Charles Schwab

  1. Read additional details about the plan from their website at https://www.schwab.com/small-business-retirement-plans/simple-ira. You can also talk with a representative at 1-800-435-4000.
  2. Download and print the adoption agreement and employer’s agreements from their website. Fill out both.
    1. For the adoption agreement, make sure to define who’s eligible. It’s a good idea to have a minimum compensation and time with the company requirements. There’s plenty of instructions in the agreement to guide you.
    2. For the employer’s agreement, you just need to enter your company information and sign it.
  3. Keep a copy of both documents for yourself and give the originals to Schwab.
  4. Schwab will then create a group master account for you and will send you instructions on creating a login. This will be the employer account that you would use to make contributions for your employees.
  5. Next, you’ll need to enroll your employees and yourself. To do this, you can send them to the website that gives instructions on how to enroll in the company’s plan, or you can download and give the forms to your employees to fill out physically. We went with the latter option so we could get everyone enrolled all at once.
    1. To have employees enroll themselves, send them to https://www.schwab.com/small-business-retirement-plans/simple-ira – the button to sign up is at the bottom of the page.
    2. To print off the forms, you’ll find them at the same page but under the “Enroll your employees and yourself” section.
    3. For your records, keep track of how much each employee wants to defer to their SIMPLE IRA. You’ll need to keep track of this both for payroll but also so you know how much you’ll need to match.
  6. Outside of Schwab, update your employee payroll to take out the payroll deductions for each employee, matching the amount that each employee wants to defer in the Elective Deferral Agreement that they filled out. This is before tax. Note: if you’re making the straight non-matching 2% contributions, you can skip this step.
  7. Lastly, you’ll need to make contributions based on what you have decided in your adoption agreement. At our company, we make contributions every pay period but you can set it be monthly or quarterly, as it makes sense for you. You’ll need to fill out the Contribution Transmittal Form and send it into Schwab along with a check for the amount. In this form, you’ll need to list out each employee with their payroll deferral amount and employer contribution. The total amount will need to match the check amount.
    1. Schwab gives a couple of physical addresses that you can send the form and check to.
    2. We usually send the filled-out form through the Message Center, located in the owner’s login. We have them set up with MoneyLink so we can transfer the money without having to write a check.
    3. After about a week, the monies will be in each employee’s retirement plan. They can then invest into whatever funds they’d like to. With Schwab, they have $0 trade commissions so they can invest in individual stocks without getting hit with commission fees.


There’s a lot of information on SIMPLE IRA plans. If you’d like to find out more, check out this article on NerdWallet. And for Charles Schwab, you can get started at this link: https://www.schwab.com/small-business-retirement-plans/simple-ira

Your employees will be happy to have a retirement plan. And as an employer, you’ll know that you’re taking care of your team.

Lastly, remember the rule of compounding interest: Invest early!

  • With a modest interest rate of 5%. investing just a $1000 a year for 10 years will be worth $14,835. That’s 48% more than you invested. Not bad!
  • However when you invest $1000 a year over 40 years, that would be worth $133,879. That’s 235% more than you invested!

About the author

Aaron Day

Professionally building websites since 2002, I've worked at Microsoft, multiple agencies, and a few web design businesses of my own. I've been an owner of Thrive Web Designs since 2015. I've taught classes, run design groups and even ran a benefit auction for 4 years in my free time. I love sharing and giving back to the web/creative community.

By Aaron Day
Web Design, Programming, and Business

Meet Aaron Day

Professionally building websites since 2002, I've worked at Microsoft, multiple agencies, and a few web design businesses of my own. I've been an owner of Thrive Web Designs since 2015. I've taught classes, run design groups and even ran a benefit auction for 4 years in my free time. I love sharing and giving back to the web/creative community.