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What Every Small Business Owner Should Know About SIMPLE IRAs

By June 17, 2025No Comments

At Heritage Financial Planning, we specialize in helping individuals, families, and small business owners build strong financial foundations for the future. One of the most overlooked, yet critical, areas of planning for small business owners is retirement—not just for themselves, but for their employees too. Fortunately, there’s a plan specifically designed for businesses with fewer than 100 employees: the SIMPLE IRA.

The SIMPLE IRA—short for Savings Incentive Match Plan for Employees—is exactly what it sounds like: a streamlined, tax-advantaged retirement plan designed to be… well, simple. It’s ideal for small business owners who want to offer a retirement benefit without dealing with the complexities and costs of a traditional 401(k) plan.

Let’s take a look at how this plan works and why it might be the right fit for your business.

Why It Works for Small Business Owners

  • Low Cost & Minimal Red Tape – Compared to 401(k) plans, SIMPLE IRAs are cost-effective and come with fewer administrative responsibilities. There’s no need to file annual reports with the IRS, and plan setup is straightforward.

  • Employee-Friendly – Any employee who earned at least $5,000 in compensation during any two prior years—and is reasonably expected to earn at least that much this year—is eligible to participate. There’s no waiting period or complicated vesting schedule.

  • Employer Contribution Options – As a business owner, you have flexibility in how you contribute. You can either match employee contributions up to 3% of their salary, or you can contribute a flat 2% for all eligible employees—regardless of whether they contribute.

  • Pre-Tax Contributions & Tax-Deferred Growth – Both employer and employee contributions are made pre-tax, and all investment growth within the account is tax-deferred until retirement.

Contribution & Withdrawal Guidelines

For 2025, employees can contribute up to $15,500, with an additional $3,500 catch-up contribution allowed for those age 50 and older. Employer contributions are mandatory and must follow one of the two options noted above.

One thing to be aware of: SIMPLE IRAs carry a 25% penalty for withdrawals made within the first two years of participation. After that period, the standard 10% early withdrawal penalty applies for distributions taken before age 59½ (unless an exception applies).

Plan Setup Timeline

Timing matters when setting up a SIMPLE IRA. Plans must be established by October 1 of the calendar year in which they are to become effective. This ensures employees have time to make deferral decisions and the business can administer contributions efficiently.

Is the SIMPLE IRA Right for You?

If you’re a business owner looking for an easy-to-manage, low-cost way to save for retirement while offering a meaningful benefit to your employees, the SIMPLE IRA could be a great solution. It provides structure without complication—and flexibility without high fees.

At Heritage Financial Planning, we can help you evaluate whether the SIMPLE IRA aligns with your goals, cash flow, and retirement vision. We’ll walk you through the pros and cons and help implement the right solution tailored to your business needs.

Looking at the Bigger Picture: Introducing the HFP S.T.A.R. Strategy

Retirement planning isn’t just about setting up an account. It’s about ensuring every piece of your financial puzzle works together to support the lifestyle you want—now and in the future.

That’s why we created the HFP S.T.A.R. Strategy, which stands for Seasonal Transition into Advanced Retirement. This unique planning model is designed to guide you through every stage of retirement with purpose, clarity, and confidence.

Through the S.T.A.R. Strategy, we help you:

  • Build reliable income streams in retirement.

  • Design age-appropriate investment strategies to reduce risk as you transition.

  • Implement smart tax planning and positioning strategies.

  • Address future healthcare needs proactively.

  • Plan for legacy and estate distribution so your wishes are honored.

Whether you’re just getting started or nearing retirement, the HFP S.T.A.R. Strategy ensures that your financial plan evolves with you—season by season.

Let’s Build Your Plan Together

If you’re a small business owner ready to take the next step toward a more secure retirement—for both yourself and your employees—now’s the time to act. At Heritage Financial Planning, we’re here to simplify the process, provide personalized guidance, and help you make confident financial decisions.

Contact us today to schedule an appointment and learn how our team can support your retirement goals using the SIMPLE Plan and our proven HFP S.T.A.R. Strategy.

Let’s build a plan that’s as strong and resilient as the business you’ve worked so hard to create.

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Click here to learn more about our HFP STAR Strategy process.

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