Savings Incentive Match Plans for Employees, or SIMPLE IRAs, are designed for small businesses as a way to offer a retirement savings plan for employees. Contributions are made via salary deferral by the participant. Employers choose between making matching contributions based on employee contributions, called elective contributions, or through non-elective contributions. Employers can match up to 3% of a participant employee's annual salary and contribute each year to the plan or make non-elective contributions equal to 2% of each eligible employee's pay, regardless of whether the employee makes elective deferrals.

As the SIMPLE IRA works similarly to other employer-sponsored retirement plans, such as a 401(k) plan, the salary deferral contributions are reported on each participant employee's W2. On Form W2 for employee compensation, SIMPLE IRA contributions made by the employee are deducted from the "wages, tips and other compensation" box, and box 13 "retirement plan" is selected. The dollar amounts for the total annual contributions are not listed specifically but, rather, figured and reported by the taxpayer. The salary reduction contributions are subject to Social Security and Medicare, however, so contribution amounts are added back into earnings for these boxes, which are numbers 3 and 5 respectively on Form W2.

Employee participants report their contributions for the year on Form 1040, Line 28. Meanwhile, the employer receives a deduction for any matching contributions made to the participant on Schedule C of the company's business tax return. Since the contributions are deductible for the employer, the company's matching dollars are not reported on Form W2 for the employee.

Hot Definitions
  1. Enterprise Value (EV)

    Enterprise Value (EV) is a measure of a company's total value, often used as a more comprehensive alternative to equity market ...
  2. Relative Strength Index - RSI

    Relative Strength Indicator (RSI) is a technical momentum indicator that compares the magnitude of recent gains to recent ...
  3. Dividend

    A dividend is a distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders.
  4. Inventory Turnover

    Inventory turnover is a ratio showing how many times a company has sold and replaces inventory over a period.
  5. Watchlist

    A watchlist is list of securities being monitored for potential trading or investing opportunities.
  6. Hedge Fund

    A hedge fund is an aggressively managed portfolio of investments that uses leveraged, long, short and derivative positions.
Trading Center