What is a SIMPLE IRA?
A Simplified Incentive Match Plan for Employees, or SIMPLE IRA, is designed to make it easier for small employers (those with 100 or fewer employees) to establish a retirement plan. A SIMPLE IRA, like a 401(k), allows employees to divert some amounts of compensation into retirement savings. As with a SEP, contributions to a SIMPLE IRA are deposited into a separate IRA for each participating employee. The participant may select any percentage of compensation to defer into the plan - even zero - but the total dollar amount cannot exceed $12,500 per year ($15,500 if you are at least age 50 by the end of the year).
Unlike the employee, the employer is required to make a contribution. The employer has two options:
- It can match the employee's contributions up to 3% of the employee's compensation.
- As an alternative to matching, the employer may contribute a flat 2% of compensation (up to a maximum compensation of $275,000) to the accounts of all eligible employees, whether or not the employee contributes any salary into the plan.
Please contact one of our IRA Experts at 800-472-0646 for more information.