|
|
A SIMPLE IRA is a retirement plan that may be established by employers, including self-employed individuals (sole proprietorships and partnerships), for the benefit of their employees. The acronym stands for "Savings Incentive Match Plan for Employees." And IRA is, of course, "Individual Retirement Account."
The SIMPLE IRA allows eligible employees to contribute part of their pretax compensation to the plan. This means the tax on the money is deferred until it is distributed. This contribution is called an elective-deferral or salary-reduction contribution.
Employers are required to make either matching contributions – based only on elective-deferral contributions made by employees – or nonelective contributions, which are paid to each eligible employee regardless of whether the employee made salary-reduction contributions to the plan. For a matching contribution, the employer's contribution may match the employee's elective-deferral contribution dollar for dollar, up to a maximum of 3% of the employee's compensation.
Like other employer plans, the SIMPLE IRA allows employers a tax deduction for contributions they make to the SIMPLE IRA plan.
Contributions to a SIMPLE IRA are not taxed, but distributions from a SIMPLE IRA are.
Why Establish a SIMPLE IRA?
Unlike qualified plans, a SIMPLE IRA plan is easy to administer. The start-up and maintenance costs for SIMPLE IRAs are very low compared to qualified plans. Because the responsibility of funding the SIMPLE IRA is shared between the employer and employee, employees have some degree of control over how much and when (the years in which) their SIMPLE IRAs may be funded.
SIMPLE IRAs: Eligibility Requirements
-
Retirement
You Finally Have Money So Where Should You Save It?
You can invest your savings in the right places to maximize your tax benefits. -
Retirement
SEP IRAs Tutorial
Learn about the set-up, the contributions to and the distributions from this IRA-based plan to which employers may make tax-deductible contributions on behalf of eligible employees. -
Retirement
How a simplified employee pension (SEP) IRA works
Learn how a Simplified Employer Pension (SEP) IRA works. Find out who qualifies to participate and what advantages it offers for retirement planning. -
Retirement
Retirement Savings Tools II: IRAs
An individual retirement account can increase your savings beyond your employer's retirement plan (or if you don't have an employer plan). -
Retirement
Tips for Properly Aggregating IRA Accounts
When it comes to IRAs, there are times when they can be combined, or aggregated, and times when they can't. Here are some basic rules to follow. -
Retirement
Which Is Better, a Traditional IRA or Roth IRA?
Traditional IRAs and Roth IRAs have different benefits, but both are great for retirement savings. -
Retirement
How Much It Takes to Max Out Your IRA
IRAs have certain tax advantages that allow your nest egg to grow at a faster rate. But there are annual limits on how much you can contribute.