CFP

By Investopedia AAA

Types of Retirement Plans - SIMPLE plans

A Savings Incentive Match Plan for Employees (SIMPLE) is a type of employer-sponsored retirement plan that allows both employers and employees to make contributions. The employer's contribution is mandatory, while the employee's contribution is optional.

SIMPLE plans come in two forms:

  • SIMPLE IRA
  • SIMPLE 401(k)
  1. SIMPLE IRA - A SIMPLE IRA must be set up for each eligible employee.
  • Employee limit -Only an employer with 100 or fewer employees who received compensation of $5,000 or more in the prior year may set up a SIMPLE IRA. Takes into account all employees employed during the year. The 100-employee limit must continue to be met after the SIMPLE IRA is set up.
  • Eligible employees - Any employee who received at least $5,000 in compensation during any two years preceding the current calendar year and is reasonably expected to receive at least $5,000 during current year.
  • Excludable employees - Unionized employees covered by collective bargaining agreement.
  • Employee contribution limits - $12,000 (for 2014) plus a $2,500 catchup contribution for employees 50 and older.
  • Employer contributions - An employer must contribute to a SIMPLE IRA in one of two ways. The employer may choose between:
    • Matching contributions - Dollar-for-dollar 3% match for employees who choose to contribute to their SIMPLE IRA.
      • An employer may choose a matching contribution of less than 3%, but the percentage must be at least 1% and cannot choose less than 3% for more than two years in a five-year period.
    • Nonelective contributions - Instead of a matching contribution, an employer may choose to make nonelective contributions of 2% of compensation on behalf of each eligible employee regardless of whether the employee makes any contributions.
  • Deducting contributions - All contributions up to the limit are deductible.
  • Deadline for setting up SIMPLE IRA - October 1 of the calendar year for which the plan is being set up.

403(b) Plans

You May Also Like

Related Articles
  1. Trading Strategies

    The 10 Worst Mistakes Beginner Traders ...

  2. Trading Strategies

    Rise and Shine With This Pre-Market ...

  3. Options & Futures

    Avoid These 10 Mistakes When Trading ...

  4. Trading Strategies

    5 Ways To Adapt To Tough Markets

  5. Professionals

    Want To Be A Financial Planner? Eye ...

Trading Center