SIMPLE IRA SETUP

  • 15 June 2023
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Our Company adopted a SIMPLE IRA plan that began funding this month.  With just over a year under our belt with Acumatica, I came to the Community to get some setup pointers but didn’t find any.  With that, I began experiments in our test environment and developed the setup that was eventually implemented in the live company environment.  I thought a few of the procedures and observations made along the way might be helpful to someone else.

G/L Considerations: The setup will require a couple of new accounts, a SIMPLE IRA liability account (for accrual of deductions and benefits) and an Employee Retirement Benefits expense account for recognition of the matching expense.

One plan, four Deduction/Benefit Codes: I set our SIMPLE IRA with four Deduction/Benefit codes for four possible situations:

  1. Employee under 50 years old, Deduction expressed as percent of gross.
  2. Employe under 50 years old, Deduction expressed as fixed amount
  3. Employee 50 years or older, Deduction expressed as percent of gross.
  4. Employe 50 years or older, Deduction expressed as fixed amount

Our Company has elected to match up to 3% of participant salaries, so each code was set up with this in mind.

The codes need to be set up with the “Affects Tax Calculation” box checked.  The four tabs are then:

  1. Tax Settings: Calculated by Tax Engine with a Code Type of SIMPLEIRA
  2. Employee Deduction: Fixed Amount or Percent of Gross (contingent on which of the two types of codes is being set up), In the Fixed Amount codes I set the default amount to be $1 to alert me to override on Employee setup. Next, the Maximum Frequency is set to ‘Per Calendar Year.” The Maximum Amount is contingent on which of the two age possibilities is being set up (under 50 or 50 and above).  The IRS-stipulated maximums go here.  Lastly, the Reporting Type I set as Box 12 SIMPLE Plan.
  3. Employer Contribution: Percent of Gross, 3.0 (%), No Maximum, Applicable Earnings = Total Earnings and Normal Reporting Type.
  4. G/L Accounts: here I entered the accounts set up in the first step.  I set the Deduction and Benefit Accrual accounts to be the same as I do not foresee a need to distinguish between the two. 

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(Continued) Employee Setup

As part of the Plan creation, each employee will execute a Salary Deferral Agreement that will provide instructions on their deferral election.  Using this and the employee’s age, the correct Deduction/Benefit code is selected in the Employee Payroll Settings, Deductions and Benefits tab.  Unchecking the “Use Deduction Defaults” box permits setting each employee’s deduction as instructed on the Deferral Agreement. 

That is the process.  I ran our first SIMPLE-effective payroll this week and it worked perfectly.  The Administrator (set up as a Vendor) will deduct the contributions and deductions from our operating account.  The invoices were created through the Create Payroll Liabilities routine.

 

What is Gross Income? A major discovery in the process was in defining Gross Income for purposes of the match.  Seems fairly straightforward - multiply the participant’s Gross Income by the 3% match factor.  Acumatica was not doing this correctly (it actually was - read on).  We have a Section 125 Cafeteria Plan set up (this permits employee healthcare premiums to be deducted prior Federal Withholding).  Throughout experimentation in the test environment Acumatica insisted on deducting these premiums prior calculation of the 3% match.  Acumatica thwarted every attempt to “fix” this error.  When the “Affects Tax Calculation” box is checked, Acumatica’s tax engine determines the order of consideration.  In this thread I posted the question asking if anyone knew how to fix the “error.”  The result was surprising, but I found the IRS rule (see the thread) - Gross Income for purposes of the calculation is explicitly after deduction of Section 125 healthcare premiums.

I thought it wise to inform participants of this prior implementation rather than answer emails complaining about “shorted Company match.” 

Chris Hackett
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Thank you for sharing your findings with the community @TSIJeff!

Chris ~ Let us know how we're doing: https://forms.office.com/r/xmJUdZ1QE5 - A member helped you, please *Like* their post. A member provided an answer to your question, please mark it as *Best Answer*.
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An important update regarding SIMPLE IRA setup in Employee Payroll Settings.

Some lessons have been learned along the way!  The setup described above worked perfectly until one employee’s deductions breached the (2023) $15,500 limit.  The employee was over 50 years of age which permitted contributions of $19,000 for 2023.  Acumatica limited the deductions to $15,500 in spite of the limit on the “over 50” Deduction Code entered as $19,000.

The problem was an unchecked box in Employee Payroll Settings > Tax Settings tab (now showing checked in the updated screenshot):

Employee Setup has a Birthday field.  What I discovered is the System does not use the birthday to determine eligibility for the Catch-Up Provision, rather, it uses the checkmark in the field.  Checking the box, above, is required in the year any employee turns 50, otherwise the system.  

Additionally:

In the Deduction Setup, The Limit Frequency should be set to “No Maximum.”  This will permit the system to automatically update the limits as the IRS adjusts each year.

Many thanks to @SoniaEchols90 for leading me through the thought process when it all began to fall apart.

SIMPLE IRA Limit Issue | Community (acumatica.com)

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