As a small business owner, you may need to review the benefits and incentives you can provide prospective employees — particularly in the area of retirement planning. If a 401(k) is not appropriate for your business, you can offer your workers a SIMPLE IRA (Savings Incentive Match Plan for Employees). This plan is available for any type of business with 100 or fewer eligible employees — those that earned at least $5,000 in compensation for the previous year.

A SIMPLE IRA can be a “win-win” situation for you and your employees. Here are some of the key advantages:

• Tax benefits — You and all your eligible employees can defer up to $6,500 of salary per year. All contributions are tax deductible and earnings grow tax deferred until withdrawal.

• Ease of administration — A SIMPLE IRA is one of the most inexpensive and easiest retirement plans to maintain. You will have virtually no setup costs, no administrative fees and no discrimination tests.

• Funding flexibility — You are generally required to match your employees’ elective contributions on a dollar-for-dollar basis, up to 3 percent of their compensation. However, you can make a lower matching contribution (not less than 1 percent) for up to two of every five years. Also, instead of making a match, you can contribute 2 percent of each eligible employee’s compensation, up to the indexed limit of $170,000.

• Range of investment options — You can fund a SIMPLE IRA with almost any investment vehicle available.

• Contributions to other IRAs allowed — If you set up a SIMPLE IRA, you cannot have another tax-qualified plan for your business. However, you and your employees can still contribute up to $2,000 a year to a traditional or Roth IRA. Although the traditional IRA contributions may not be tax deductible, they will still grow on a tax deferred basis (Roth IRA contributions are not tax deductible, but earnings grow tax free, provided you meet certain conditions).

Although the SIMPLE IRA offers many benefits, you need to make sure that your employees understand that this plan is intended for retirement — not for short-term goals. In fact anyone under age 59 1/2 who withdraws money from a SIMPLE IRA within 2 years of making their initial contribution will be subject to a 25 percent penalty, in addition to their regular income taxes. After the first two years, distributions taken before age 59 1/2 will incur a 10 percent penalty, although there are some exceptions.

A SIMPLE solution...

Before you launch a SIMPLE IRA, consult with your tax adviser. If this plan fits your business, you may be pleased with the results. Remember, happier employees are better employees.