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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
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