Rules of Simple IRA Your Business Needs to Know

A Savings Incentive Match Plan for Employees plan, better known as a simple plan, is an IRA-based retirement program available to employers with fewer than 100 employees.

Under a simple individual retirement account plan, an employee can lend a part of his wage to his simple individual retirement account account. An employee can do a upper limit part of $9,000, ($10,500 if age 50 and over), to his simple individual retirement account account for 2004. You, the employer, are required to do a part for every worker who have $5,000 or more than in compensation.

You can fit up to 3% of the wage for the employees who lend to their simple individual retirement account account. You only have got to fit for those employees who lend to the plan. In any 2 old age out of a 5 twelvemonth period, after presentment to the employees, you may elect a lower matching part percentage but not less than 1% of salary.

Your business also have the option to choose a “non-elective” compulsory company lucifer of 2% of annual wage for every employee. Under the “non-elective” part formula, even if an eligible employee doesn’t lend to his simple IRA, you must still lend to his account 2% of his salary.

Advantages of the simple IRA

Less expensive than a 401(k)

Disadvantages of the simple IRA

A particular tax punishment of 25% alone to the simple individual retirement account for backdowns made within the first two old age of gap a simple plan. (Congress is considering eliminating this tax).

A simple individual retirement account is much less flexible than a 401(k) plan.

Employer must do parts for all eligible employees.

No parts can be made to other qualified retirement plans.

All parts are immediately vested, meaning all parts belong right away to the employee.

A simple individual retirement account program can only be terminated prospectively, beginning no earlier than the adjacent calendar year. Contributions must go on until the program is terminated.

A simple individual retirement account must be put up at least 60 years prior to twelvemonth end. Thus, October 1, is the last twenty-four hours to put up a new simple individual retirement account for the calendar year.

No loans allowed.

While the simple individual retirement account do senses under certain circumstances, this program come ups with a batch of twines attached. If your business have no employees and you make not anticipate to engage employees in the close future, see using a Solo 401(k) with a loan characteristic instead of a simple IRA. And, if you have got more than than 20 employees, expression at setting up a regular 401(k) as an alternative.

To terminate a simple individual retirement account plan, advise the financial establishment that you chose to manage the simple individual retirement account program that you will not be making parts for the adjacent calendar twelvemonth and that you desire to terminate the contract or understanding with it. You must also advise your employees that the simple individual retirement account program will be discontinued.