401k
401k Information

Simple IRA Versus 401k – Both Offer Tax Deductions to Employers

The 5304 Simple IRA Form Provides Clear Instructions For Opening A Retirement Account

The 5304 simple IRA IRS form is used in order to establish a simple IRA account.

Employers must complete the 5304 simple IRA form before it can begin making contributions on behalf of its employees.

Steps to Follow Before Employers Can Establish a Simple IRA

  1. There are other steps to follow before a plan can be established along with completing the 5304 simple IRA form.
  2. Employers can use the IRS simple IRA plan model to establish this retirement savings program for employees. Also, employers may use a simple IRA plan that banks, insurance companies and other qualified institutions may offer.
  3. Form 5305 simple IRA is used if the contributions will be deposited into a designated financial institution, such as Fidelity Investments or Franklin Templeton. Form 5304 simple IRA is used if each employee is allowed to select his or her own financial institution to receive the contributions.
  4. Employers must ensure that all eligible employees receive the necessary information about the simple IR plan that the company is offering. The standard rule is to provide the information each year prior to the employees’ election period.This enables the employee to have enough time to review the plan before making a decision to participate. The election period is during the 60 days prior to January 1 of the calendar year.
  5. The final step for employers is to set up a simple IRA account for all eligible employees as either a trust or custodial account. The IRS forms which apply to this step are Form 5305-S or Form 5305-SA respectively.

The IRS has many forms besides the 5304 simple IRA that employers must use correctly when setting up retirement accounts. Many companies choose to hire an outside brokerage firm with trained professionals who are most familiar with which form to use, and when to use it.

This will reduce the amount of costly errors employers could possibly make if the wrong form is used, or if forms are not submitted on time.

Whether a company decides to use an outside firm or their own benefits department, it is best to ensure that the right procedures are being followed. The 5304 simple IRA form does come with instructions that if followed correctly will ensure compliance.