1. SIMPLE IRAs: Introduction
  2. SIMPLE IRAs: Eligibility Requirements
  3. SIMPLE IRAs: Contributions
  4. SIMPLE IRAs: Distributions
  5. SIMPLE IRAs: Conclusion

By Denise Appleby

What Is a Savings Incentive Match Plan for Employees (SIMPLE) IRA?
A SIMPLE IRA is a retirement plan that may be established by employers, including self-employed individuals (sole proprietorships and partnerships). 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, which are 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 the SIMPLE IRA are not taxed, but distributions from the SIMPLE IRA are.

Why Establish a SIMPLE?
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

Related Articles
  1. Retirement

    SIMPLE IRA Contribution Limits in 2016

    Learn the SIMPLE IRA contribution limits for 2016, with a brief summary of how the plan works, including eligibility and contribution and distribution rules.
  2. Retirement

    SIMPLE IRA Vs SIMPLE 401(k) Plans

    See the differences that may cause an employer to choose one plan over the other.
  3. Retirement

    Retirement Planning For The Self-Employed

    Recent studies show that most self-employed Americans are saving little, if anything, for retirement. But making an investment in yourself is worth it.
  4. Retirement

    Making Spousal IRA Contributions

    Eligibility requirements, contribution limits and tax deductions all change with one little ring.
  5. Retirement

    Plans The Small-Business Owner Can Establish

    Don't hesitate to adopt a smart plan for you and your employees.
  6. Retirement

    SEP IRA Limits in 2016

    Discover the SEP IRA limits for 2016. Included is a summary, plans that would be ideal candidates for SEP IRAs, and contribution and distribution rules.
  7. Retirement

    Hey Self-Employed, Are You Making The Most Of Your Retirement Options?

    Even if you own your own business, it is still very important to save for retirement, and to understand your options for doing so.
  8. Retirement

    IRA Contribution Limits in 2016

    Find out about the 2016 limits for contributions and income thresholds for individual retirement accounts, including traditional IRAs and Roth IRAs.
  9. ETFs & Mutual Funds

    IRAs and Roth IRAs

    What IRAs are: Tax-advantaged savings accounts for individuals. Pros: Tax benefits; investments grow tax-deferred and contributions may be deductible; numerous investment choices with range of ...
  10. Retirement

    IRA Contributions: Eligibility And Deadlines

    Use this checklist for contribution requirements to make your payments on time.
Trading Center