DEFINITION of 'Savings Incentive Match Plan For Employees Of Small Employers - SIMPLE'

A retirement plan that may be established by employers, including self-employed individuals. The employer is allowed a tax deduction for contributions made to the SIMPLE. The employer makes either matching or non-elective contributions to each eligible employee's SIMPLE IRA and employees may make salary deferral contributions.

BREAKING DOWN 'Savings Incentive Match Plan For Employees Of Small Employers - SIMPLE'

The employer has two alternatives when it comes to making contributions. The first is to match the amounts that each employee makes toward his or her own elective-deferral contribution up to 3% of the employee's annual compensation. The second alternative is for the employer to make a flat 2% nonelective contribution to all qualified employees, regardless of whether the employee makes any contributions.

Contributions to SIMPLE IRAs are immediately 100% vested, and the IRA owner directs the investments.

To learn more about the rules governing retirement plans, check out Can I contribute to my Roth IRA while participating in my employer-sponsored retirement plan?

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