A SIMPLE Way to Save on Taxes | American Funds

  • Forms & Literature

How-To Guides

A SIMPLE Way to Save on Taxes

There are about 29 million small businesses in the U.S. Yet, 72% of small-business owners and their employees don’t have access to a retirement plan.*

SIMPLE IRAs may be an ideal solution for business owners with 100 or fewer employees. They don’t require complex IRS reports and are:

  • Inexpensive
  • Easy to set up
  • An incentive to attract quality employees

Our video shows how American Funds can help you with SIMPLE IRAs.

* Source: Small Business Administration



Speaker 1: Your financial advisor is always looking out for your best interests and wants to help you stay on track to achieve the kind of retirement you’re looking forward to one day.

It’s likely you’re already investing for retirement. Your advisor would like you to know that your business can help you save even more through a company retirement plan. Chances are at some point you’ve considered starting a plan at your company perhaps to attract and keep the best possible employees. Did you know that it’s you, as the business owner, who stands to benefit the most?

Think about it. Money you contribute to a retirement plan is deducted directly from the income from your business before taxes. A $100 expense to your business may actually save you $28 in taxes while allowing your retirement plan account to grow tax deferred. In effect, you’re investing more toward your future and reducing your current taxable income at the same time.

There’s a retirement solution for every business. Your financial advisor has identified one that may be ideal for you, a savings incentive match plan for employees, or a SIMPLE IRA.

Similar to a 401(k), but designed especially for businesses like yours, a SIMPLE IRA can enable you and your employees to save more on a tax deferred basis than you could on your own through a traditional IRA. What does this mean to you?

You can contribute up to $12,000 a year to a SIMPLE IRA — 14,500 if you’re age 50 or older. Just imagine if you contributed $12,000 a year for 20 years to a taxable account. Assuming an 8% growth rate and say a 28% tax bracket, you’d have almost $325,000 at the end of that period. [Note: For 2016, the SIMPLE IRA contribution limit is $12,500 and $15,500 for those over 50.]

See the difference a tax deferred account like a SIMPLE IRA could make over time with the same assumed 8% growth rate. Your money could grow to over $593,000. Of course, the money would be subject to taxes when withdrawn.

For example, assuming a 28% tax bracket, if you took the $593,000 as a lump sum withdrawal at the end of the 20-year period, you would pay approximately $166,000 in taxes; however, you would still be better off with a tax deferred investment in this example. Keep in mind an 8% rate of return [is for illustrative purposes only and] is not guaranteed. Your rate and the tax rates applicable to different investments may vary.

That’s not all. A company match adds to the contributions you and your employees make to your respective accounts. While employer contributions are required, they’re also a tax deductible business expense saving you in taxes.

Let’s take a closer look at SIMPLE IRAs, specifically, a SIMPLE IRA from American Funds, a respected provider in the retirement plan industry. This plan offers you several benefits. The first question you may ask yourself is what does this cost. It may come as a surprise to learn just how affordable a SIMPLE IRA from American Funds can be.

Administrative fees charged by American Funds are among the lowest in the industry and are usually paid for by each participant; just $10 for account setup and an annual $10 maintenance fee.

The plan is easy to manage. Your financial advisor can help you set up a SIMPLE IRA at American Funds. Once the plan is up and running, you can submit plan contributions online, quickly and conveniently right from your computer. Best of all, unlike a 401(k), there are no complex IRS reports for you to complete, so you can focus on what’s really important — your business.

Finally, with an American Funds SIMPLE IRA, you have accessed the same quality investment options that Fortune 500 companies have in their employer-sponsored 401(k)s, including the American Funds Target Date Retirement Series®.

For over 80 years, American Funds has been helping investors pursue their long-term goals. Today, over 170,000 business owners like you are saving for retirement through an American Funds SIMPLE IRA.

Getting started is easy. Just call your financial professional and ask how you and your business can benefit from an American Funds SIMPLE IRA.

Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.

Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing. 

Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. This information is intended to highlight issues and not to be comprehensive or to provide advice.