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. Small Business

    Plans The Small-Business Owner Can Establish

    Don't hesitate to adopt a smart plan for you and your employees.
  2. 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.
  3. 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.
Frequently Asked Questions
  1. What are the Differences Among a Real Estate Agent, a broker and a Realtor?

    Learn how agents, realtors, and brokers are often considered the same, but in reality, these real estate positions have different ...
  2. What is the difference between amortization and depreciation?

    Because very few assets last forever, one of the main principles of accrual accounting requires that an asset's cost be proportionally ...
  3. Which is better, a fixed or variable rate loan?

    A variable interest rate loan is a loan in which the interest rate charged on the outstanding balance varies as market interest ...
  4. What is the 1003 mortgage application form?

    Learn about the 1003 mortgage application form, what information it requires and why this form is the industry standard for ...
Trading Center