A Savings Incentive Match Plan for Employees Individual Retirement Account, commonly known by the abbreviation "SIMPLE IRA", is a type of tax-deferred employer-provided retirement plan in the United States that allows employees to set aside money and invest it to grow for retirement. Specifically, it is a type of Individual Retirement Account (IRA) that is set up as an employer-provided plan. It is an employer sponsored plan, like better-known plans such as the 401(k) and 403(b) (Tax Sheltered Annuity plans), but offers simpler and less costly administration rules, as it is subject to ERISA and its associated regulations. Like a 401(k) plan, the SIMPLE IRA can be funded with pre-tax salary contributions, but those contributions are still subject to Social Security, Medicare, and Federal Unemployment Tax Act taxes.[1] Contribution limits for SIMPLE plans are lower than for most other types of employer-provided retirement plans as compared to conventional defined contribution plans like Section 402(g), 401(k), 401(a), and 403(b) plans.
Only an "eligible employer" may establish a SIMPLE IRA. An eligible employer is one with no more than 100 employees. An employer who has already established a SIMPLE IRA may continue to be "eligible" for two years after crossing the 100-employee limit.
Employees are not required to make regular IRA contributions to their SIMPLE IRA account.
A SIMPLE IRA requires a certain minimum contribution from the employer. The employer may either:
Match the contributions of each employees dollar-for-dollar up to 3% of the employee's compensation (or a smaller percentage in certain cases); or
Contribute a flat 2% of the compensation for each employee with at least $5,000 in compensation for the year, regardless of the amount the employee contributes.[2][3][4]
Employees who are not yet age 50 are allowed to contribute up to $14,000 in 2022.[5] Participants who are age 50 or older are allowed to contribute $17,000 for 2022.[5] These limits are different from the limits that apply to 401(k), 403(b), and 457 plans.[6]
The SIMPLE plan can technically be funded with either an IRA or a 401(k). There is almost no benefit to funding it with a 401(k), because the lower contribution limits of the SIMPLE are required as is the expensive extra administration of the 401(k).
An employee is allowed to make a direct rollover from a SIMPLE IRA into a Traditional IRA after at least two years has passed from the date the employee first participated in the plan.
An employee is allowed to make a direct rollover from an IRA, a 401(k), or a 403(b) into a SIMPLE IRA after two years of participation. An employee is allowed to make a direct rollover from another SIMPLE plan into a SIMPLE IRA during the first two years of participation in a SIMPLE IRA.[7]
If a participant, who is not yet 59½ years old, wishes to take a distribution and it has been less than two years since their first contribution into the plan, they could be required to pay a penalty of up to 25% (10% if more than two years) to the Internal Revenue Service. This two-year rule applies to all distributions, including rollovers from the SIMPLE IRA. Any amount withdrawn and not rolled over, regardless of age, is also subject to ordinary income tax for the year in which the distribution is made.
^ abcde. Internal Revenue Service. November 13, 2020. Archived from the original on April 20, 2021.
^. Internal Revenue Service. November 23, 2020. Archived from the original on May 15, 2021.
^. CNN Money. CNN. Archived from the original on December 3, 2020.
^Kagan, Julia (November 26, 2021). "SIMPLE IRA". Investopedia. Retrieved September 2, 2016.
^ ab"Retirement Topics - SIMPLE IRA Contribution Limits". Internal Revenue Service. November 8, 2021. Retrieved May 27, 2022.
^"Retirement Topics - 401(k) and Profit-Sharing Plan Contribution Limits". Internal Revenue Service. November 5, 2021.
^"SIMPLE IRA Plans for Small Businesses". Internal Revenue Service. 2020.
Additional referencesedit
"Publication 560: Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans)" (PDF). Internal Revenue Service. 2021. pp. 8−11.
Littell, David; Tacchino, Kenn (2002). Planning for Retirement Needs (5th ed.). Bryn Mawr, Pennsylvania: The American College. ISBN1-57996-039-1.
Internal Revenue Code Section 408(p)
December 15, 2023
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A Savings Incentive Match Plan for Employees Individual Retirement Account commonly known by the abbreviation SIMPLE IRA is a type of tax deferred employer provided retirement plan in the United States that allows employees to set aside money and invest it to grow for retirement Specifically it is a type of Individual Retirement Account IRA that is set up as an employer provided plan It is an employer sponsored plan like better known plans such as the 401 k and 403 b Tax Sheltered Annuity plans but offers simpler and less costly administration rules as it is subject to ERISA and its associated regulations Like a 401 k plan the SIMPLE IRA can be funded with pre tax salary contributions but those contributions are still subject to Social Security Medicare and Federal Unemployment Tax Act taxes 1 Contribution limits for SIMPLE plans are lower than for most other types of employer provided retirement plans as compared to conventional defined contribution plans like Section 402 g 401 k 401 a and 403 b plans Contents 1 Rules 2 Annual contribution limits 3 See also 4 References 4 1 Additional referencesRules editOnly an eligible employer may establish a SIMPLE IRA An eligible employer is one with no more than 100 employees An employer who has already established a SIMPLE IRA may continue to be eligible for two years after crossing the 100 employee limit Employees are not required to make regular IRA contributions to their SIMPLE IRA account A SIMPLE IRA requires a certain minimum contribution from the employer The employer may either Match the contributions of each employees dollar for dollar up to 3 of the employee s compensation or a smaller percentage in certain cases or Contribute a flat 2 of the compensation for each employee with at least 5 000 in compensation for the year regardless of the amount the employee contributes 2 3 4 Employees who are not yet age 50 are allowed to contribute up to 14 000 in 2022 5 Participants who are age 50 or older are allowed to contribute 17 000 for 2022 5 These limits are different from the limits that apply to 401 k 403 b and 457 plans 6 The SIMPLE plan can technically be funded with either an IRA or a 401 k There is almost no benefit to funding it with a 401 k because the lower contribution limits of the SIMPLE are required as is the expensive extra administration of the 401 k An employee is allowed to make a direct rollover from a SIMPLE IRA into a Traditional IRA after at least two years has passed from the date the employee first participated in the plan An employee is allowed to make a direct rollover from an IRA a 401 k or a 403 b into a SIMPLE IRA after two years of participation An employee is allowed to make a direct rollover from another SIMPLE plan into a SIMPLE IRA during the first two years of participation in a SIMPLE IRA 7 If a participant who is not yet 59 years old wishes to take a distribution and it has been less than two years since their first contribution into the plan they could be required to pay a penalty of up to 25 10 if more than two years to the Internal Revenue Service This two year rule applies to all distributions including rollovers from the SIMPLE IRA Any amount withdrawn and not rolled over regardless of age is also subject to ordinary income tax for the year in which the distribution is made Annual contribution limits editContribution Limits Year Under Age 50 Age 50 or Older2005 10 000 12 0002006 10 000 12 5002007 10 500 13 0002008 10 500 13 0002009 11 500 14 0002010 11 500 14 0002011 11 500 14 0002012 11 500 14 0002013 12 000 14 5002014 12 000 14 5002015 12 500 15 5002016 12 500 1 15 500 1 2017 12 500 1 15 500 1 2018 12 500 15 5002019 13 000 16 0002020 13 500 16 5002021 13 500 16 5002022 14 000 17 000See also editForm 1099 R List of finance topics Personal financeReferences edit a b c d e SIMPLE IRA Plan FAQs Contributions Internal Revenue Service November 13 2020 Archived from the original on April 20 2021 Choosing a Retirement Plan SIMPLE IRA Plan Internal Revenue Service November 23 2020 Archived from the original on May 15 2021 What is a SIMPLE IRA CNN Money CNN Archived from the original on December 3 2020 Kagan Julia November 26 2021 SIMPLE IRA Investopedia Retrieved September 2 2016 a b Retirement Topics SIMPLE IRA Contribution Limits Internal Revenue Service November 8 2021 Retrieved May 27 2022 Retirement Topics 401 k and Profit Sharing Plan Contribution Limits Internal Revenue Service November 5 2021 SIMPLE IRA Plans for Small Businesses Internal Revenue Service 2020 Additional references edit Publication 560 Retirement Plans for Small Business SEP SIMPLE and Qualified Plans PDF Internal Revenue Service 2021 pp 8 11 Littell David Tacchino Kenn 2002 Planning for Retirement Needs 5th ed Bryn Mawr Pennsylvania The American College ISBN 1 57996 039 1 Internal Revenue Code Section 408 p Retrieved from https en wikipedia org w index php title SIMPLE IRA amp oldid 1146983968, wikipedia, wiki, book, books, library,
