Step 1: Contact a retirement plan professional or a simple IRA rollover representative of a financial institution that offers retirement plans. Many financial institutions will probably have a pre-approved Simple IRA Rollover plans form that you can review.
Step 2: Choosing a financial institution to maintain employees’ SIMPLE IRAs is one of the most important decisions you will make, since that entity becomes a trustee to the plan. (Alternatively, you can decide to let employees choose the financial institution that will receive their contributions.)
Regardless of who makes the choice, only the following institutions can be designated as trustees of SIMPLE IRA plans: banks, mutual funds, insurance companies that issue annuity contracts, and certain other financial institutions that have been approved by the IRS. Trustees agree to:
- Receive and invest contributions, and
- Provide the employer with a summary description of the plan features each year.
Step 3: Choose a model form or other plan document offered by your financial institution. If your financial institution offers a model SIMPLE IRA plan document, you will have a choice of two forms to use:
- IRS Form 5304-SIMPLE, Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) – Not for Use with a Designated Financial Institution, or
- IRS Form 5305-SIMPLE, Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) for Use with a Designated Financial Institution.
The model form you use will depend on whether you decide to select the financial institution that will receive contributions or to let your employees’ select financial institutions.
- If employees are allowed to select the financial institutions that will receive their SIMPLE IRA -2-plan contributions, you will fill out Form 5304-SIMPLE.
- If you require that all contributions under the SIMPLE IRA plan be initially deposited with a designated financial institution, you will fill out Form 5305-SIMPLE.
Your choice of the employees covered will be set out in your selected plan document. You can choose to cover all employees without restriction.
Alternatively, you can limit the employees covered to those who received at least $5,000 in compensation during any 2 years prior to the current calendar year and who are reasonably expected to receive at least $5,000 during the current calendar year.
Step 4: Complete and sign the selected IRS form (or other plan document, if not using a model form). When it is completed and signed, this document becomes the plan’s basic legal document, describing your employees’ rights and benefits. Do not send it to the IRS; instead keep it handy.