Tags: Retirement | SIMPLE IRA | retirement

What Are SIMPLE IRA Plans

By    |   Friday, 21 August 2015 02:43 PM

A Savings Incentive Match Plan for Employees, known as a SIMPLE IRA plan, is a retirement savings account for small businesses and those who are self-employed.

Contributions are tax deductible, and investments are tax deferred until retirement when withdrawals are made. Employees make contributions to the SIMPLE IRA plans and employers are required to make contributions into the employees’ accounts as well, CNN noted.

Employers may elect to make a matching one-for-one contribution of up to 3 percent of the employee’s salary or contribute 2 percent for every employee that earned at least $5,000 in compensation during the year, according to Raymond James. In this case, the contribution is made whether the employee contributes or not.

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SIMPLE IRA plans are less expensive to set up and administer than many other employer-sponsored qualified retirement plans. The plans also have higher contribution levels than traditional or Roth IRAs.

A SIMPLE IRA plan can be set up for up to 100 employees, Schwab explained. Employee contributions are made through regular salary deferrals.

The employee contribution amount to a SIMPLE IRA cannot exceed $12,500 in 2015, according to the IRS. Participants who are age 50 or older may contribute an additional $3,000 as a “catch-up” in 2015. If the employee also contributes to other employer plans with elective salary reductions, the total amount the employee can contribute to all plans is $18,000 in 2015.

There are a number of benefits to a SIMPLE IRA, according to Schwab:
  • It is a retirement plan that allows business owners and self-employed individuals to contribute to a plan that offers additional contributions from the company and allows employees the same benefit.
  • It’s an inexpensive plan that is funded principally by employees.
  • It provides employer contributions of up to 3 percent of annual compensation.
  • It allows the company to take an expense tax deduction for the employee contributions it makes.
  • The contributions grow tax-deferred until the employee retires and begins to withdraw the money.
  • The SIMPLE IRA plan is easy to administer and since it is not a qualified plan, there is no tax filing requirement.

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A Savings Incentive Match Plan for Employees, known as a SIMPLE IRA plan, is a retirement savings account for small businesses and those who are self-employed.
SIMPLE IRA, retirement
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2015-43-21
Friday, 21 August 2015 02:43 PM
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