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)
- 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.
- Matching contributions - Dollar-for-dollar 3% match for employees who choose to contribute to their SIMPLE IRA.
- 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.
RetirementLearn the SIMPLE IRA contribution limits for 2016, with a brief summary of how the plan works, including eligibility and contribution and distribution rules.
Financial AdvisorThis comprehensive guide goes through what a SIMPLE IRA is, how to set one up, contribute to it and withdraw from it.
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RetirementIf you're at a small company, you may be offered a SIMPLE IRA retirement plan. Contribution limits are lower, but vesting is instant, with other benefits.
RetirementFind out how employer matching of your 401(k) contributions works, including how employer contributions are calculated and annual contribution limits.
RetirementFind out what the contribution limits are for 401(k) retirement savings plans in 2016, including individual, employer and aggregate limits.