Ira Contributions

Simple IRA is a Savings Incentive Match Plan for Employees. This being a simplified plan, the administrative costs are lower than those of other complex plans. In Simple IRA, both the employers and employees make contributions to the traditional IRAs, subject to certain limits.

Simple IRA is for small businesses, with 100 or fewer employees. If the employer opts for a Simple IRA, then his employees can elect to defer a part of their salary for making contributions to the IRA fund. Each employee is vested in all contributions to his or her Simple IRA. The employer can make a matching contribution for the dollar amount or maximum 3% of pay or a 2% nonelective contribution for each employee who is eligible. Under the nonelective contribution scheme, even if the employee chooses not to contribute to Simple IRA, he or she can still be eligible for the employer contribution amounting to 2% of the pay. To put it in simple words, the employer must contribute and the employee may contribute.

An employee can contribute up to $10,500 in a year. If the employee is of age 50 or over, a "catch-up" contribution of up to $2,500 is also allowed. An employer generally has no requirements to file. The annual reporting required for other qualified plans is not required for Simple IRA. The financial agency that holds the Simple IRAs does most of the paper work. The partnering financial agency may have several investment options and each employee can pick the one that suits him or her best.

Participant loans are not permitted. In-service withdrawals are permitted. But the withdrawals are included in income and are subject to 10% additional IRA taxes if the participant is under the age of 59 1/2. During the first two years the 10% IRA tax is raised to 25%.

The financial agency will manage the funds. Simple IRA contributions can be made in individual stocks, mutual funds, bonds and other similar investments. The employees can interchange their assets among their simple IRAs. Tax-free roll over of Simple IRA contributions is allowed in between two Simple IRAs. A similar rollover to a non Simple IRA is also possible, but not before being a part of a simple IRA for two years.

Simple IRA can only be terminated prospectively, beginning no earlier than the next calendar year and contributions must continue till then. To terminate a Simple IRA, the financial agency that has been handling the plan and your employer must be notified in advance.

This Simple IRA plan is less complex and easier to operate and will certainly prove to be a better bet, than any of the other IRA plans for eligible employees.

Ira Contributions |