What is a Simple IRA Plan?

A SIMPLE IRA PLAN

is an easy-to-manage savings plan for small employers that allows its employees to put tax-deferred money aside for retirement.

SIMPLE IRA, which is an acronym for Savings Incentive Match Plan for Employees Individual Retirement Accounts, provides small employers with a simplified method to contribute toward their employee’s and their own retirement savings. These types of plans are tailored specifically for small businesses with 100 or fewer employees.

Which employees are eligible to participate in a SIMPLE IRA plan?

Employees eligible to participate in a simple IRA plan if they have made at least $5,000 during any two previous years (whether or not consecutive) and expect to make that much or more in the current year.

How does a SIMPLE IRA work?

When utilizing a SIMPLE IRA plan, a business and its employees can put a percentage of pay aside for retirement. The money will grow tax-deferred until it is withdrawn at retirement.

Similar to many retirement savings plans, there is a limit of $13,500 of funds to input into this type of account.

Employees that are age 50 or older are given the option to make catch=up contributions, limited to $3,000.

SIMPLE IRA plans require employers to match employee contributions:

- Up to 3% of employee’s compensation

- At least 1% for no more than 2 out of 5 years

The employer may also choose to make a 2% non-elective contribute to employees’ SIMPLE IRA accounts.

This means that the business can make a contribution to all employees even if they do not contribute themselves.

Setting up a SIMPLE IRA Plan as an employee

If employees choose to set up a SIMPLE IRA plan, they must fill out two forms: a SIMPLE IRA Plan Salary Reduction Agreement and a SIMPLE IRA Plan Participation Notice and Summary.

If you or your business has any further questions about SIMPLE IRA Plans, visit the IRS website or contact Eddie Patel Inc.