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What Are Savings Incentive Match Plans for Employees of Small Employers (SIMPLE IRAs)? |
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From : U.S. Department of Labor
Personal Finance >
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The SIMPLE IRA plan - savings incentive match plan for employees of small employers - gives businesses with 100 or fewer employees an affordable way to offer retirement benefits through employee salary reductions and matching contributions (similar to those found in a 401(k) plan).
Any employer with 100 or fewer employees who earned $5,000 or more during the preceding calendar year is eligible to establish a SIMPLE IRA plan. However, an employer that currently sponsors another retirement plan generally cannot sponsor a SIMPLE IRA plan.
In addition, SIMPLE IRA plans can be sponsored by most types of organizations, including C-corporations, S-corporations, partnerships and sole proprietorships. Related employers (businesses under common control, for instance) are treated as a single employer.
Eligible employees can contribute up to $8,000 in 2003 (gradually increasing to $10,000 in 2005) through payroll deductions. Catch-up provisions allow employees 50 and older to make an additional $1,000 contribution in 2003, with the limit increasing $500 each year until reaching $2,500 in 2006.
When employers start these plans, they have two options for the IRAs where the contributions are deposited:
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The employer may choose the financial institution that will receive all contributions under the plan. In this case, employees will have the right to transfer contributions to a SIMPLE IRA at another financial institution without cost or penalty.
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Each employee may make the initial choice of financial institution to receive contributions. In this case, an employee does not have the right to transfer to another financial institution without cost or penalty.
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