How a SIMRP Plan Can Create Funds for Retirement Savings

How a SIMRP Plan Can Create Funds for Retirement Savings

For most employees, retirement planning often feels out of reach — competing financial priorities, rising costs, and stagnant wages can make saving difficult. However, a Supplemental Insurance Medical Reimbursement Plan (SIMRP) can provide a unique, tax-efficient way to free up additional funds that can later be directed toward retirement savings.

What Is a SIMRP?

A SIMRP is an IRS-compliant, employer-sponsored wellness and medical reimbursement plan that operates under Sections 105, 106, and 213(d) of the Internal Revenue Code. These codes allow certain qualified medical and wellness expenses to be paid for with pre-tax dollars, meaning employees and employers both save money on taxes.

In essence, a SIMRP lets participants use money that would normally go to payroll taxes (FICA, Medicare, etc.) to instead fund health and wellness benefits — all without reducing take-home pay.

How It Creates Extra Savings

Here’s how it works in simple terms:

1. Tax Reallocation, Not Deduction - Instead of paying all standard payroll taxes, a portion of each employee’s compensation is reclassified into pre-tax benefits under the SIMRP.

2. Reduced Tax Burden - Because part of the compensation is now used for tax-free medical benefits, both the employer and employee pay less in FICA taxes each pay period.

3. Net Pay Increase - Even after covering wellness benefits, employees often see a small increase in take-home pay — typically $100–$200 more per month — since less of their income is taxed.

4. Employer Savings - Employers also save on their payroll tax match — often $500–$600 per employee per year — which can be redirected toward employee benefits or wellness initiatives.

Turning Tax Savings Into Retirement Funds

The power of a SIMRP goes beyond wellness — the savings it generates can become a foundation for long-term financial security. Here’s how:

• Employees can choose to redirect their increased take-home pay into retirement accounts such as a 401(k), Roth IRA, or annuity plan. Even modest monthly contributions can compound significantly over time.

• Employers can use their SIMRP savings to match employee contributions, enhance retirement benefits, or establish supplemental retirement programs.

For example: An employee saving just $150 per month from SIMRP-related tax savings could accumulate nearly $100,000 over 25 years (assuming a modest 6% annual return).

Compliance and Transparency

A well-administered SIMRP follows all relevant IRS guidelines and includes documentation for each benefit category, ensuring compliance with:

• Section 213(d): Defines eligible medical and wellness expenses.

• Section 105: Allows tax-free medical reimbursements.

• Section 106: Excludes employer-paid health premiums from taxable income.
  

Because the program is built entirely on existing IRS provisions, the savings are legitimate and sustainable — not a loophole, but a smarter use of existing tax law.

The Bottom Line

A SIMRP plan doesn’t just improve health and wellness — it can help build financial wellness, too. By turning ordinary payroll taxes into meaningful benefits and long-term savings opportunities, SIMRPs offer a win-win for both employees and employers.

With proper guidance and administration, a SIMRP can become a powerful tool for retirement readiness, allowing participants to turn today’s tax savings into tomorrow’s financial freedom.

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