SIMPLE IRA Plans
Many small business owners are looking for a retirement plan that allows employees
to defer a portion of their salary, without the complexity and the administrative
requirements of a 401(k) plan.
A SIMPLE IRA plan, which works
much like a 401(k) plan but without the administrative cost, may be the solution.
Any type of business entity, including a sole proprietorship, partnership or corporation,
as well as certain tax-exempt organizations, can establish a SIMPLE IRA plan for its
employees. A SIMPLE plan can also be established as a SIMPLE 401(k) trust account,
but is not utilized in this format very often. For that reason, the information provided
in this section is specific to the SIMPLE IRA format.
An employer maintaining a SIMPLE plan may not maintain any other qualified plan in
which the employees currently receive benefits. An eligible employer is defined as
having 100 or fewer employees. Employees must be eligible if they receive at least
$5,000 in compensation during any two preceding years and are expected to earn at
least $5,000 in the current year. A less restrictive eligibility requirement may be
utilized. There are no minimum participation requirements.
Employees may defer up to $8,000 (in 2003), with no set maximum percentage
of compensation.* The employer must make a mandatory contribution as either a matching
dollar-for-dollar contribution on the first 3% elective deferral or a 2% uniform contribution
to all eligible employees, regardless of whether they made an elective deferral. (The
employer can elect a lower matching contribution in two out of five consecutive years.)
*Employees age 50 and older may make a catch-up contribution of $1000 for 2003.
A SIMPLE plan is not subject to nondiscrimination tests or top-heavy requirements.
If the SIMPLE IRA format is used, there is no requirement to file a Form 5500. As
a result, there are minimal plan administration costs, and highly paid or owner-employees
are not restricted in their ability to defer as a result of low participation by the
our Qualified Plan Comparison chart (.PDF format) to compare this product to other
Qualified Retirement Plan options.
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