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What is a Simple IRA
The SIMPLE-IRA, or Savings Incentive Match Plan for
Employees-IRA, replaced the SAR SEP-IRA for new plans established on or after
January 1, 1997.
The SIMPLE-IRA is a tax-deferred retirement plan provided by
sole proprietors or small businesses (fewer than 100 employees) who do not
maintain or contribute to any other retirement plan. Contributions are made by
both the employee and the employer. In a SIMPLE-IRA, contributions and the
investment earnings can grow tax-deferred until withdrawal (assumed to be
retirement), at which time they are taxed as ordinary income.
Annually, the maximum employee contribution available in a
Simple IRA is $10,000 if you are under age 50 and $12,000 if you are older than
50, plus your employer's contribution. With the exception of
the higher contribution limits, SIMPLE-IRAs are subject to the same rules as a
regular IRA.
Simple IRAs are designed for employers with less than
100 employees.
There are no minimum participation requirements with Simple
IRA plans.
Advantages
Simple IRAs are designed for employers with less than
100 employees.
There are no minimum participation requirements with Simple
IRA plans.
Can Also Invest in IRAs
Employees with SIMPLE-IRAs can also invest in
regular IRAs, giving you another opportunity to save for your retirement.
Tax-Deferred Contributions and Earnings
Your contributions are taken pre-tax, reducing
your taxable salary, and both the contributions and earnings can grow
tax-deferred until they are withdrawn. Tax-deferred contributions and earnings
make up the best one-two punch in investing.
Employer Contributions
In a SIMPLE-IRA, employer contributions can take
the form of a 100% match--doubling your money right from the start (up to 3% of
the employee's compensation for the year)--or a straight 2% (up to $3,200 per
employee) of compensation for all eligible employees, whether or not they
contribute to the plan.
Employee Contributions
Employee contributions are limited to $7000 annually($7500 if age 50 or
older), plus your employers contribution.
Eligibility
Depending on the rules of your company, you may be able to contribute to a
Simple IRA in any year where you earn a salary and are a regular employee.
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