Savings Incentive Match Plan for Employees (SIMPLE) IRAs

The Savings Incentive Match Plan for Employees (SIMPLE) IRA* is a tax-qualified retirement plan for businesses (C Corps, S Corps, Partnerships, and Sole Proprietorships) with fewer than 100 employees. It enables eligible firms to offer 401k-type benefits without complicated rules or high administrative expenses. It enables eligible employees to make tax-deductible contributions beyond what a traditional IRA allows.

For businesses, SIMPLE means: No top-heavy rules. No discrimination testing. No Form 5500 filings each year. Fully deductible contributions (subject to certain limits).

For individuals, SIMPLE means: Contribution limits far above what a traditional IRA allows. Complete investment control. Some level of employer contributions. Full and immediate vesting of employer contributions.

Required employer contributions can be made on either a 3 percent “elective” basis or a 2 percent “non-elective” basis.

Under the elective method, the employer is required to contribute only if an employee “elects” to contribute. Under the non-elective method, the employer contributes a flat percentage of compensation (2 percent minimum) for everyone regardless of any personal participation.

SIMPLE contribution limits are indexed for individuals age 50 and under. Contributors over the age of 50 can make catch-up contributions of up to $2,500 per year. One hundred percent of earned income can be contributed. All contributions must be made through salary withholding.