SIMPLE IRAs: Conclusion
A Savings Incentive Match Plan for Employees (SIMPLE) is an IRA-based employer plan under which eligible employees are allowed to make contributions to their SIMPLE IRAs, and employers are required to make either matching or nonelective contributions.
- SIMPLE IRAs can be established by business owners who had 100 or fewer employees who earned at least $5,000 during the preceding year.
- Unlike qualified plans [such as a 401(k)], a SIMPLE IRA plan is easy to administer. The start-up and maintenance costs for SIMPLE IRAs are very low compared to qualified plans.
- Any employer – which includes sole proprietorships, partnerships, corporations and non-profit organizations – may establish a SIMPLE IRA Plan, as long as the employer meets the eligibility requirements.
- Contributions to SIMPLE IRAs are immediately 100% vested, and the SIMPLE IRA owner (employee) directs the investments.
- An employer is required to make either dollar-for-dollar matching contributions (not to exceed 3% of the employee's compensation), or 2% nonelective contribution to all eligible employees regardless of whether they make deferral contributions.
- The tax and penalty treatment applicable to distributions from a SIMPLE IRA is determined by the SIMPLE IRA owner's age at the time of distribution.