SIMPLE Retirement Account (SRA)

Merrill Lynch Wealth Management's savings incentive match plan for employees (SIMPLE) retirement account (SRA) is a cost-effective retirement program that offers an employee salary-deferral contribution feature along with an employer contribution.

WHEN SHOULD YOU CONSIDER AN SRA?

Consider the SRA if your business has steady income and your employees want to make contributions to a retirement plan.

WHAT ARE THE BENEFITS OF AN SRA?

For employers:

Reduce fees and paperwork

• No start-up or annual program administration fees.
• No ADP or top-heavy testing requirements.
• Internal Revenue Service Form 5500 filing is not required.

Gain tax advantages

• Program contributions generally are tax-deductible as a business expense.
• If eligible, you may take a nonrefundable income tax credit for 50% of the first $1,000 of administrative and retirement education expenses you may incur in each of the plan’s first three years.

For participants:

Gain tax advantages

• Contributions and investment earnings have the potential to grow tax-deferred until withdrawal.
• Individuals who make salary-deferral contributions may qualify for a nonrefundable income tax credit of up to $1,000 for individuals or $2,000 if filing jointly.

Benefit from investment choices and flexibility

• Participants have complete control over their assets and may invest in a variety of investment options.
• All contributions are 100% vested immediately.

WHO CAN ESTABLISH AN SRA?

• Generally, self-employed individuals and employers who do not maintain any other retirement plan and who have 100 or fewer employees receiving at least $5,000 in compensation for the preceding plan year are eligible. An employer generally will not be eligible if any contributions were made or benefits were accrued to a qualified retirement plan maintained by the employer during the year in which the SIMPLE will be in effect.

WHO CAN PARTICIPATE IN AN SRA?

• Any employee who received $5,000 or more in compensation in any two preceding calendar years and who is reasonably expected to receive at least $5,000 in the current year is eligible. You may adopt less-restrictive eligibility requirements.

WHAT ARE THE CONTRIBUTION GUIDELINES?

For employers:

Employers must contribute annually, either:

• A flat 2% of compensation for each eligible employee, regardless of participation, or
• A dollar-for-dollar match of employee salary-deferral contributions capped at 3% of compensation (may be reduced to as low as 1% in any two years during a five-year period).
• Employer contributions must be made annually by the employer’s tax-filing deadline, including extensions.

For employees:

• Employees can defer up to $11,500 of compensation annually.*
• Employees age 50 and older can defer an additional catch-up contribution of up to $2,500.*
• Rollover contributions from other SIMPLE IRAs are permitted.
• Employees can elect to participate in the plan or modify existing salary-deferral elections within 60 days of the start of each plan year, and they can discontinue their salary-deferral contribution at any time.
• Employees must be notified by the employer annually of their right to begin making salary-deferral contributions, or to revoke or modify existing contributions.

HOW ARE DISTRIBUTIONS FROM AN SRA TAKEN?

• Distributions are subject to ordinary income tax.
• Distributions taken prior to age 59½ are subject to an additional 10% early withdrawal penalty tax, unless certain exceptions apply.
• Distributions taken within two years of initial participation generally are subject to a 25% early withdrawal penalty tax.
• Required minimum distributions must begin after the participant reaches age 70½.

WHAT ELSE DO YOU NEED TO KNOW?

• In order to fund a SIMPLE plan for the current year, the plan must be established by Oct. 1 of that year.
• An SRA must be maintained on a calendar-year basis.
• An eligible employer who adopts the SRA and who fails to be an eligible employer in a subsequent year will be treated as an eligible employer for the following two years.
• The SRA is considered an employer-sponsored retirement plan. Therefore, an individual's eligibility to make deductible contributions to a traditional IRA may be reduced or eliminated by participation in the SRA.
• After a two-year waiting period has been satisfied, employees may transfer or rollover SRA assets to a traditional IRA or another employer-sponsored retirement plan or convert them to a Roth IRA.

WHAT TIME-SAVING SERVICES ARE AVAILABLE?

Merrill Lynch provides multiple time-saving services that allow you to focus more on your business and less on administrative tasks.

• The Merrill Lynch E-Contribs for Small Business Retirement Accounts^TM service provides an easy and convenient web-based solution for making employer contributions to retirement plan accounts at no additional charge.
• The Automated Investment Program service provides a systematic way to invest in mutual funds on a schedule based on your needs.
• Managed money solutions offer discretionary, fee-based investment services.