Talk to an IRA Expert |
Savings Incentive Match Plans for Employees (SIMPLE IRA)
SIMPLE plans were designed to encourage more small companies to establish retirement plans. SIMPLE IRAs are less complicated to set-up and administer than traditional 401(k)s and allow for salary deferral contributions to IRA accounts.
- Salary deferral contributions made by the employees and employer contributions made to the participant's SIMPLE IRA are deductible by the employer.
- Complicated non-discrimination testing and 5500 reporting is not required.
- Earnings accumulate in the account tax deferred.
- Employees consider salary deferral plans a valuable benefit.
- Employer has no fiduciary responsibility. Contributions are invested in individual's IRA, and individual makes all investment decisions.
For more information visit www.irs.gov.
Employer Eligibility
- Limited to employers with less than 100 or fewer employees during the preceding year who received at least $5,000 in compensation from the employer.
- Can defer up to 100% of compensation not to exceed $10,500.
- Plan may not be established for the current year after October 1st.
- The employer may not maintain any other employer sponsored retirement plan for the year for which the SIMPLE plan is maintained.
- Eligible entities include corporations, partnerships, tax-exempt organizations, corporations, and sole proprietors.
- Place Trade offers Employee Education for employers who are setting up or transferring their SIMPLE IRA (as well as other business retirement plans) to help employees understand what the plan is, how the plan works and how it will benefit them.
- We understand that your Fiduciary Responsibility to your employees is of the utmost importance. Call us today at 1-800-50-PLACE or 1-919-719-7200 for a Free Guide to understanding your fiduciary responsibility as an employer when it comes to retirement planning.
Simple IRA Contributions
When an employee elects to make salary deferral contributions to a SIMPLE IRA account, there is no limit on the percentage of the salary deferral; and the employee may elect to defer up to 100% of his compensation, provided the total contribution amount does not exceed the annual deferral limit.
The elective deferral limits for SIMPLE IRAs are presented below along with additional "catch up"� salary deferral contributions may be made to SIMPLE IRA accounts for participants who have attained the age of 50 by year-end.
Year |
Limit - Under 50 |
Catch-Up |
Total - 50 and over |
| 2010 | $11,500 | $2,500 | $14,000 |
| 2011 | $11,500 | $2,500 | $14,000 |
(Elective deferrals to a SIMPLE IRA are excluded from the gross income of the participant)
Employer Contributions
An employer who sponsors a SIMPLE plan must make some type of contribution for his employees; however he has the option of making either matching contributions or non-elective contributions for any tax year.
|
Employer Contribution Option 1 |
Dollar per Dollar up to 3% of income |
|---|---|
|
Employer Contribution Option 2 |
2% Non-elective contribution |
Option 1: If the employer chooses matching contributions, he is generally required to match the employee's elective deferral contribution dollar for dollar up to 3% of the employee's compensation.
Option 2: If the employer chooses non-elective contributions, he is required to contribute an amount equal to 2% of each eligible employee's compensation for each employee who is eligible to participate and has earned at least $5,000 in compensation for the year.
SIMPLE Rollovers and Transfers
Rollovers and transfers must only be made between SIMPLE accounts, not between SIMPLE and other IRA accounts. After the two-year holding period has elapsed, the participants may rollover assets from the SIMPLE account to an IRA, or convert the assets to a Roth IRA.
Simple Distributions
Distributions from a SIMPLE IRA are taxed as ordinary income when distributed. Distributions from a SIMPLE IRA follow all the rules for distributions from a traditional IRA, with two exceptions:
- Simple Pre-2 Year Distributions
The IRS imposes a 25% penalty on distributions taken from a SIMPLE IRA within two years of the date of the first contribution to the Simple account. - Required Beginning Date May Be Delayed
if a person is still working and has compensation once they have attained the age of 70�, required minimum distributions may be delayed until the year following the year the participant retires.
Deductibility limits can be confusing and tax laws are frequently changing. It is always best to review your specific situation and/or circumstances with a qualified tax advisor.
Would a SEP IRA or a 401(k) be more appropriate for you?
Give us a call at 1-800-50-PLACE or 1-919-719-7200 and speak with a retirement specialist today for more information about opening your corporate retirement account.