Employer Q&A

Questions and

answers about the

Schwab SIMPLE IRA

Here are answers to some questions you may have

about a SIMPLE IRA Plan. Schwab investment

professionals may be able to provide additional

information you may need to help you understand

how a SIMPLE IRA Plan can benet you and your

company. We suggest that you also consult with

your tax advisor before establishing your company

retirement plan.

Eligibility

How do I determine if I’m eligible to establish a

SIMPLE IRA Plan?

Any employer, self-employed person, sole proprietor,

partnership, or corporation with up to but not exceeding

100 eligible employees may set up this retirement plan.

However, you can’t establish a SIMPLE IRA Plan if you already

maintain an employer-sponsored retirement plan, such as a

401(k), Keogh, SEP-IRA, Money Purchase Pension, or Prot-

Sharing plan, and you made a contribution to that plan for the

same tax year. You also can’t use a SIMPLE IRA Plan if your

employees received an increase in their accrued benets under

a dened benet pension plan. If you do have another plan, you

should review your situation with your legal or tax advisor rst.

Must I include all employees?

No. If you wish, you can exclude employees who are covered by a

collective bargaining agreement, employees acquired in a merger

or similar business transaction, or nonresident aliens with no

U.S. income.

Which employees are eligible?

An employee is eligible to participate in your SIMPLE IRA Plan if

he or she received $5,000 or more in compensation from you in

any previous two years and if you reasonably expect that the

employee will receive at least $5,000 in the current year. You can

set a lower minimum compensation amount if you want to allow

more employees to participate. Please note that Schwab does

not accept SIMPLE IRA accounts for employees under age 18.

Are all of my eligible employees required to

participate?

No. Participation is voluntary, and you may have a SIMPLE IRA

Plan regardless of how many employees actually participate.

Can I get a tax credit for my costs to set up

my plan?

Yes. An eligible employer establishing a new SIMPLE IRA may

receive a tax credit for costs to establish, administer or educate

employees about retirement planning. You can claim a credit of

up to $500 for each of the plan’s rst three years.

Are there fees for the SIMPLE IRA?

There are no fees to establish a Schwab SIMPLE IRA Plan or to

maintain the accounts for you and your employees.

Please see the most current Charles Schwab Pricing Guide,

including any amendments to the Guide, for details about our

standard commission rates and other fees and charges that may

affect the accounts for you and your employees.

Must my employees open their SIMPLE IRA

accounts at Schwab?

No. They can open their SIMPLE IRA account at any nancial

institution that is willing to accept a Schwab SIMPLE IRA Plan

account. But having an account at Schwab gives your employees

access to the service, investment choices and convenience for

which we’re known. Once you’ve made contributions to their

SIMPLE IRAs, employees own and control their accounts.

Contributions

What are the salary deferral contribution limits for

a SIMPLE IRA Plan?

The chart below shows salary deferral contribution limits.

Salary Deferral Contribution Limit

for Tax Year 2020

Salary deferral

contribution limit for

those under age 50

Salary deferral

contribution limit for

those age 50 and over

$13,500

$16,500

As an employer, what amount must I contribute

each year to my employees’ SIMPLE IRA accounts?

Each calendar year you’re required to select one of the following

contribution methods for your SIMPLE IRA Plan:

Matching

Contributions

Nonelective

Contributions

You contribute To SIMPLE IRAs of

eligible employees

who make

contributions.

To SIMPLE IRAs

of all eligible

employees,

whether or not

they contribute.

Amount

contributed

Dollar-for-dollar

match, up to 3%*

of the employee’s

compensation.

2% of

compensation.

Your contribution

limits

Up to $13,500 for

each contributing

employee for

2020. Additional

salary deferrals

for those age 50

and over are

not eligible for

matching.

$5,700 for each

eligible employee.

*Pleasenote:Inanytwoyearsofave-consecutive-yearperiod,youmayuseadollar-

for-dollarmatchofaslittleas1%ofcompensationinplaceof3%matching.Ifyou

decidetochangethetypeoramountofcontributions,youmustnotifyemployeesat

least60daysbeforethestartoftheplanyear.

Matching Contributions. With this option, you match the

contribution of each participant on a dollar-for-dollar basis up to

3% of compensation. This amount can’t exceed the salary deferral

contribution limit for that year (see the chart at left). Remember

that with this method you contribute only to the SIMPLE IRA

accounts of those eligible participants who make salary deferral

contributions. For no more than two years out of ve you may

match a smaller percentage, but not less than 1% of

compensation.

A hypothetical example of how matching contributions are

calculated for a company with four eligible participants is

illustrated in the table on the following page.

Nonelective Contributions. If you select this option, you’ll

contribute 2% of each eligible employee’s salary up to a

maximum contribution of $5,700,

whether or not employees

make contributions themselves.

In addition, each of your eligible employees can contribute up to

100% of compensation or the salary deferral contribution limit

(see the table on this page), whichever is less, to his or her

SIMPLE IRA before federal taxes.

A hypothetical example of how nonelective contributions are

calculated for a company with four eligible participants is

illustrated in the table on the following page.

How do SIMPLE IRA contributions affect personal taxes?

SIMPLE IRA contributions aren’t subject to federal income taxes

until you withdraw funds. However, they are subject to applicable

Social Security and Medicare (Federal Insurance Contribution

Act, or FICA; or Self-Employed Contributions Act, or SECA) and

unemployment insurance (Federal Unemployment Tax Act, or

FUTA) taxes. Participation in a SIMPLE IRA Plan doesn’t reduce

Social Security benets. Employer contributions are not subject

to FICA or FUTA but may be subject to SECA.

Matching Contributions

Employee

Salary

Employee

Contribution

Employee

Match %

Matching

Contribution

Explanation

Business Owner $100,000 7% ($7,000) 3% 3% ($3,000) The employer matches up to

3% of the employee’s salary.

Employee 1 $50,000 1.5% ($750) 3% 1.5% ($750) Since the employee chooses to

contribute 1.5%, the employer

matches only that percentage,

not the 3% maximum.

Employee 2 $25,000 5% ($1,250) 3% 3% ($750) The employer matches up to

3% of the employee’s salary.

Employee 3 $25,000 0% 3% 0% Since the employee makes no

contribution, there is nothing

for the employer to match.

Nonelective Contributions

Employee

Salary

Employee

Contribution

Nonelective

Contribution

Explanation

Business Owner $100,000 7% ($7,000) 2% ($2,000) The employer must contribute

2% of the employee’s salary.

Employee 1 $50,000 1.5% ($750) 2% ($1,000) The employer must contribute

2% of the employee’s salary.

Employee 2 $25,000 5% ($1,250) 2% ($500) The employer must contribute

2% of the employee’s salary.

Employee 3 $25,000 0% 2% ($500) The employer must contribute

2% of the employee’s salary.

As a business owner, how do I calculate my own

contributions if I’m self-employed?

Use your net earned income to calculate your contributions for

the year. That’s the income you earn from personal services to or

on behalf of your business, minus your deductions (excluding any

contributions to your account). You may contribute up to the

annual salary deferral contribution limit (see the chart on page 4)

or 100% of your net earned income, whichever is less.

When are SIMPLE IRA contributions vested?

All SIMPLE IRA contributions, both employer and employee, are

immediately 100% vested.

May employees make changes to their salary

deferral contribution amount during the year?

Yes. Employees can stop contributions at any time, provided they

give advance notice to you. If you wish (though it’s not required),

you can establish a policy on the Participant Notice and

Summary Description that permits your eligible employees to

change the amount of their contributions during the year.

Employees who wish to change or stop their contribution

amounts should give your company’s Plan Administrator a new

completed, signed and dated Elective Deferral Agreement.

Contributions (Continued)

How do I notify my employees about the employer

contribution method I intend to use?

Annually, and no later than 60 days before the new plan year, you

must communicate the method you intend to use during the next

plan year by giving your employees a completed Participant

Notice and Summary Description.

When must I deposit employee salary deferral and

employer contributions?

You need to coordinate with your payroll department to make

sure that the deposits are made as soon as the employees’ salary

deferrals can be separated from the general assets of the

business. IRS rules require that you make the salary deferral

contributions no later than 30 days following the month in which

you withheld the deferrals from an employee’s salary.

However, you may make your employer annual matching or

nonelective contributions anytime up to your business income

tax ling deadline, including extensions.

How do I submit salary deferral contributions?

You can make salary deferral contributions by Direct Deposit

(ACH), by Schwab MoneyLink

, or by mailing a check.

Direct Deposit (ACH)

• Contributions are initiated at your banking nancial institution.

• Contact your bank to authorize the bank to deposit the salary

deferrals directly into each employee’s SIMPLE IRA account,

not into your group plan (SIMPLE IRA Master account).

• You do not need to send Schwab a Contribution Transmittal

Form when using this method.

If your bank allows electronic funds transfers, you’ll need to

provide the bank with the following information:

• Institution’s Name: JPMorgan Chase/Account of Charles

Schwab

• Address: 211 Main Street, San Francisco, CA 94105

• Phone: 1-800-435-4000

• Direct Deposit Routing Transit Number: 071000013

• Account Number: 593853800XXXXXXXX

(where “XXXXXXXX” represents the employee’s eight-digit

Schwab SIMPLE IRA account number)

• Account Type: Checking

• Employee/Account Holder Name

Note: Only salary deferral contributions can be made using the

Direct Deposit method. All employer contributions must be made

by MoneyLink or check.

MoneyLink

You initiate the MoneyLink service through Schwab by completing

and returning a Contribution Transmittal Form. The form

authorizes Schwab to transfer funds from your bank and lets

Schwab know the amount that should go into each employee’s

SIMPLE IRA account.

Note: You must complete a Schwab MoneyLink Electronic Funds

Transfer Form to establish the MoneyLink service for your

SIMPLE IRA Master account.

Check

Simply mail us a check along with a completed Contribution

Transmittal Form detailing how to allocate the contributions

you’re sending.

Can employees who contribute to a SIMPLE IRA

also contribute to personal IRAs?

Yes, you and your employees can each contribute up to the

lesser of $6,000 ($7,000 if you’re age 50 or older)

or 100% of

your compensation to your personal IRAs. However, you can’t

put SIMPLE IRA contributions in a personal IRA. A separate

SIMPLE IRA account must be established. Also, since the

SIMPLE IRA Plan is considered an employer-sponsored

retirement plan, depending on income and tax ling status, some

or all of your personal IRA contributions may not be deductible.

Investment Choices

What investment choices are available for my

Schwab SIMPLE IRA?

Schwab offers investment choices to help each participant tailor

a portfolio that’s right for them. Participants may select from a

full range of investments and services—including mutual funds,

stocks, xed income securities, bonds, options, and investment

advisory products—all in one convenient place.

What are investment advisory products?

Schwab’s investment advisory products are a suite of fee-based

investment service offerings that will provide your eligible plan

participants with ongoing support and discretionary portfolio

management. As the plan sponsor you decide whether or not to

offer investment advisory products under your plan. There is

no cost to you as the plan sponsor for making these products

available to participants in your plan. The fees will apply to only

those eligible participants who decide to enroll in these products.

How do I make investment advisory products

available for my plan?

You don’t need to do anything to make investment advisory

products available under your plan. However, if you decide

not to offer investment advisory products as an investment

choice under your plan, you must complete and sign an

Investment Advisory Products Opt-Out Form and return it

to Schwab.

You can change your decision at any time by notifying us

in writing.

Distributions

When can funds be withdrawn from a SIMPLE IRA?

While SIMPLE IRA contributions are meant for retirement,

participants may withdraw funds (take distributions) at any

time by completing and submitting a Schwab IRA Distribution

Request Form. The distributed amount will be subject to

ordinary income tax. And, if under age 59½, it may also be

subject to a 10% federal tax penalty (a gure which increases

to 25% if the withdrawal occurs within two years from the date

an employee began participating in the plan). State tax penalties

may also apply.

Administration and Rules

When can I establish a SIMPLE IRA Plan?

You can establish a plan any time between January 1 and

October 1, but you must operate the plan on a calendar-year

basis, even if your business tax year is a different 12-month

period.

When must I notify my employees about yearly

contribution determinations (often referred to as

the “Open Enrollment Period”)?

Employees must be allowed 60 days before the next year begins

to determine how much of their compensation they wish to

defer into the plan during that year. Since their decision depends

in part on the employer’s contribution for the coming year,

that information must be provided to employees on or before

November 1.

See the table on the following page to review the steps you, as

the employer, must take each year to comply with the rules for

SIMPLE IRAs.

As the employer, must I le any documents with the

IRS when I set up a SIMPLE IRA Plan?

Generally, there’s nothing you have to le with the IRS. However,

you may want to consult with your tax advisor about your

individual situation.

Administration and Rules (Continued)

Am I required to send out reports to my employees

about their SIMPLE IRAs?

You must submit a Form W-2 annually to the IRS and to each

employee, showing the employee’s taxable income as reduced

by his or her contributions.

Will Schwab send out any reports to me or my

employees?

Schwab will send account statements at least quarterly to

each account holder. Schwab will also send you, the employer,

an annual notication about open enrollment.

How do I obtain additional forms and documents

necessary for the ongoing administration of

my plan?

We provide all of the forms to meet your ongoing plan

administration needs online at Schwab.com. You can either

complete the forms online before printing or you can print

them and complete them by hand. Regulatory documents,

such as the SIMPLE IRA Basic Plan Document, can also be

accessed online.

Time Frame Objective

Before November 1 Select one of the contribution methods for your SIMPLE IRA Plan (see pages 4–6 for more

information).

On or before November 1 1. Complete a Participant Notice and Summary Description. Select your yearly contribution method

in Section 2, Part C.

2. Photocopy the completed Participant Notice and Summary Description and distribute a copy to

each eligible employee along with a copy of the Elective Deferral Agreement. Eligible employees

include both those who are already contributing (or eligible to contribute) and those who are

newly eligible for the coming year.

Before January 1 1. Collect employees’ Elective Deferral Agreements for the coming year.

2. Arrange for withholding under the agreements, to begin with the rst pay period in January.

Brokerage Products: Not FDIC-Insured • No Bank Guarantee • May Lose Value

Important Disclosures

Thisinformationisnotintendedtobeasubstituteforspecicindividualizedtax,legalorinvestment

planningadvice.Wherespecicadviceisnecessaryorappropriate,Schwabrecommendsconsultation

withaqualiedtaxadvisor,CPA,nancialplannerorinvestmentmanager.

Optionscarryahighlevelofriskandarenotsuitableforallinvestors.Certainrequirementsmust

bemettotradeoptionsthroughSchwab.PleasereadtheOptionsDisclosureDocumenttitled

“CharacteristicsandRisksofStandardizedOptions”beforeconsideringanyoptiontransaction.Call

Schwabat1-800-435-4000foracurrentcopy.Supportingdocumentationforanyclaimsorstatistical

informationisavailableuponrequest.

Thetaxcreditissubjecttocertainlimitsandrestrictions.Pleaseconsultyourtaxadvisorforinformation

onyourparticularsituation.

Mayadjustannuallyforinationbutonlyinincrementsof$500.

Thecurrentcompensationcapforcalculatingnonelectivecontributionsis$285,000fortaxyear

2020(subjecttoadjustmentsforinationin$5,000increments).Matchingcontributionshaveno

compensationcap.Acompensationcapmeansthatiftheemployee’scompensationisover$285,000in

taxyear2020,only$285,000willbeusedforcalculationpurposesintaxyear2020.

Fortaxyear2020.Federallawprovidesforcertainfutureincreasesandinationadjustments.

Printedonrecycledpaper.

CC3666567(1219-9HS4) MKT31170-09(12/19)

00239040