An employee (including a self-employed individual) who: earned at least $5,000 in compensation during any 2 years before the current calendar year and. expects to receive at least $5,000 during the current calendar year.
In general, you're eligible to participate in a SIMPLE IRA if you've received at least $5,000 in compensation during any two preceding calendar years and expect to earn at least that much during the calendar year of participation.
A SIMPLE IRA is funded by:
SIMPLE IRA assets may also be moved to other tax-qualified savings arrangements but generally not until the two-year waiting period that begins with the first SIMPLE IRA contribution has passed. Traditional IRA and employer plan savings can be moved into a SIMPLE IRA after the two-year period has passed.
You can set up a SIMPLE IRA plan effective on any date from January 1 through October 1 of a year, provided you did not previously maintain a SIMPLE IRA plan.
SIMPLE IRAs provide a convenient alternative for small employers who don't want the bureaucratic and fiduciary complexities that come with a qualified plan. Employees still get tax and savings benefits, plus instant vesting of employer contributions.
An employer can exclude the following employees from a SIMPLE IRA plan: Employees covered by a union agreement and whose retirement benefits were bargained for in good faith by the employees' union and the employer.
SIMPLE IRA plans can provide a significant source of income at retirement by allowing employers and employees to set aside money in retirement accounts. SIMPLE IRA plans do not have the start-up and operating costs of a conventional retirement plan.
Employer contributions can be a match of the amount the employee contributes, up to 3% of the employee's salary. An employer may choose to lower the matching limit to below 3%. However, an employer cannot lower the threshold below 1%, and she cannot keep the lowered limit in place for more than two out of five years.
Tax benefits — Employer contributions qualify as a tax-deductible business expense. Affordable cost — A $10 one-time setup fee and an annual $10 fee, both per participant.
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