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Savings Incentive Match for Employees-IRA (SIMPLE) |
A Simplified Employee
Pension IRA, or SIMPLE-IRA, is a tax-deferred retirement plan designed for small business
owners (100 employees or less) or other self-employed individuals. With this plan, both
the employer and the employee make contributions to an employee's retirement plan --
up to $6,000 by the employee plus an employer's match. Contributions are deducted from
taxable income which allows employee's to save both state and federal taxes.
One of the biggest advantages a SIMPLE-IRA has over a traditional IRA is the higher
contribution limit. The employee's contribution alone is able to exceed the $2,000 limit
of a traditional IRA. And even if you have a SIMPLE-IRA at work, you're still allowed to
contribute to a regular IRA on your own.
Contributions
Contributions to a SIMPLE-IRA are subject to the same rules as a regular IRA -- except for
the higher contribution limits. And like other IRAs, you're allowed to spread your SIMPLE
among different types of investments.
Employee:
- Limited to $6,000 annually.
Employer:
- 100% match (3% of employees
salary).
- 2% ($3,200 max) for eligible employees (non-elective).
Withdrawals
Pre-tax contributions and earnings in a SIMPLE-IRA are tax-deferred until you begin
withdrawals -- at which time they are taxed as ordinary income. Distribution is required
at age 70 1/2 or retirement.
"No Brainer"
Whether you're self-employed or work for a smaller organization (100 employees or less), a
SIMPLE-IRA will give you the added boost for your retirement plan. It offers the best of
both worlds: tax-deferral and larger contributions. If you're lucky enough to have an
employer that cares about your future, starting a SIMPLE-IRA is a "no brainer".
IRA Calculators:
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• What
amount am I allowed to contribute?
• Should I convert my IRA
into a Roth IRA?
• Which will
provide the most retirement income?
• What
option is best for estate planning? |
