09/01/2022

Thinking of Starting a Retirement Plan? Now is the Time!

By SSA's Peggy Slaughter, CFP®, CRPS®, AIF®, CPFA

The new year will be here before you know it. If you have been considering starting a new retirement plan, or making changes to the one you have, you may need to do it before Jan. 1 for it to be effective in 2023.

SIMPLE IRA – Many small organizations like the low-cost simplicity of a SIMPLE IRA. While features are limited compared to a 401(k), the trade-off is almost no administration cost and very little oversite. To start a new SIMPLE IRA plan effective Jan. 1, you must give a notice to all employees by Nov. 1, letting them know they can make an election to contribute and the type of contribution the employer tends to make. Employer contribution options are 1) matching 100 percent on employee contributions up to 3 percent or 2) a 2 percent contribution to all eligible employees. 

Change from SIMPLE IRA to 401(k) – Has your organization outgrown your SIMPLE IRA and you want to offer the increased features and flexibility of a 401(k) Plan? You cannot sponsor a SIMPLE IRA and a 401(k) Plan in the same calendar year. So, if you want to shift to a 401(k), you must notify participants by Nov. 1 that the SIMPLE IRA will be stopping at the end of December.  The 401(k) doesn’t have to start exactly on Jan. 1 but SIMPLE IRA contributions must stop before then. 

Another thought on moving from a SIMPLE IRA to a 401(k) – If a few participants are interested in rolling their SIMPLE IRA balance into the 401(k), it is possible to eliminate nearly all start-up and billed administrative fees utilizing the OSAP Members’ 401(k) Retirement Plan Exchange. Just $100,000 in first year assets (rollovers and contributions) will waive the start-up fee. At $500,000, there are no billed administration fees. 

Tax credits to start a new retirement plan – One of the biggest obstacles to starting a new profit sharing, 401(k) or defined benefit pension plan is the administration and start-up costs involved.  Even a small plan can cost several thousand dollars to get started.  Now there is a tax credit available to offset these fees. It’s a complex formula but basically the minimum credit is $500, and the maximum is $5,000, depending on the number of employees eligible to participate. The credit can be claimed for each of the first 3 years of the plan.

If you would like to discuss starting a new retirement plan or options to change your current plan, feel free to give me a call. And remember, the OSAP Members’ 401(k) Exchange Plan is a great way to combine forces with your fellow members to reduce both costs and liabilities associated with sponsoring a retirement plan. Contact me at peggy.slaughter@salingsimms.com or call us at (614) 841-1881 for more information. I look forward to hearing from you!

Peggy Slaughter is a retirement plan specialist at Saling Simms Associates and has been working with Associations for more than 20 years. Investment advisory services offered through Saling Simms Associates, 7965 North High Street, Suite 130, Columbus, Ohio, 43235, 614-841-1881.