Tags: Retirement | simple ira | traditional ira

SIMPLE IRA or Traditional IRA: Which Plan Is Right For You?

By    |   Tuesday, 26 May 2015 02:53 PM

A traditional Individual Retirement Account or Annuity (IRA) is a savings account that an individual employee begins and then creates a payroll deduction to contribute to the account.

A Savings Incentive Match Plan for Employees (SIMPLE) IRA is set up by a small business employer who then has to contribute at least 2 percent of the employee’s salary. The employee can choose to not contribute to the account.

If the employee chooses to contribute the employer must also match the contribution up to three percent of the employee’s pay.

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Contribution Limits

An employee can contribute no more than $5,500 (or $6,500 if older than 50) under a traditional IRA plan.

With a SIMPLE IRA, the employee can contribute a maximum of $12,500 ($15,500 for employees over 50) to the fund. The employer then also makes the contribution discussed previously.

Benefits

A traditional IRA allows for tax-deductible contributions and the earnings are tax-deferred. Employees have total ownership of this fund.

A SIMPLE IRA also holds the same tax benefits and employees have full ownership of the money. Furthermore, employees benefit since they can choose to not contribute, and still will always receive a contribution from the employer.

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A SIMPLE IRA is beneficial to an employer too as it is fairly easy and inexpensive to set up. The employer contributions are also tax deductible.

What’s Right For Me?

When determining which plan is better for you, eligibility requirements come first. If an individual does not work for a small company, or the employer decides to set up a different retirement plan, then a SIMPLE IRA is not an option.

The next consideration is contribution amount. The SIMPLE IRA has higher contribution limits and also requires employer contributions. The traditional IRA is based on the employee’s contributions alone.

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A traditional Individual Retirement Account or Annuity (IRA) is a savings account that an individual employee begins and then creates a payroll deduction to contribute to the account.
simple ira, traditional ira
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2015-53-26
Tuesday, 26 May 2015 02:53 PM
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