| A Savings Incentive Match Plan for Employees | | | | - A SIMPLE IRA is much less flexible than a |
| plan, better known as a SIMPLE plan, is an | | | | 401(k) plan. |
| IRA-based retirement plan available to | | | | |
| employers with fewer than 100 employees. | | | | - Employer must make contributions for all |
| | | | eligible employees. |
| Under a SIMPLE IRA plan, an employee can | | | | |
| contribute a portion of his pay to his SIMPLE | | | | - No contributions can be made to other |
| IRA account. An employee can make a maximum | | | | qualified retirement plans. |
| contribution of $9,000, ($10,500 if age 50 | | | | |
| and over), to his SIMPLE IRA account for | | | | - All contributions are immediately vested, |
| 2004. You, the employer, are required to make | | | | meaning all contributions belong right away |
| a contribution for every worker who receives | | | | to the employee. |
| $5,000 or more in compensation. | | | | |
| | | | - A SIMPLE IRA plan can only be terminated |
| You can match up to 3% of the salary for the | | | | prospectively, beginning no earlier than the |
| employees who contribute to their SIMPLE IRA | | | | next calendar year. Contributions must |
| account. You only have to match for those | | | | continue until the plan is terminated. |
| employees who contribute to the plan. In any | | | | |
| 2 years out of a 5 year period, after | | | | - A SIMPLE IRA must be set up at least 60 |
| notification to the employees, you may elect | | | | days prior to year end. Thus, October 1, is |
| a lower matching contribution percentage but | | | | the last day to set up a new SIMPLE IRA for |
| not less than 1% of salary. | | | | the calendar year. |
| | | | |
| Your business also has the option to select a | | | | - No loans allowed. |
| "non-elective" mandatory company match of 2% | | | | |
| of annual salary for every employee. Under | | | | While the SIMPLE IRA make senses under |
| the "non-elective" contribution formula, even | | | | certain circumstances, this plan comes with a |
| if an eligible employee doesn't contribute to | | | | lot of strings attached. If your business has |
| his SIMPLE IRA, you must still contribute to | | | | no employees and you do not expect to hire |
| his account 2% of his salary. | | | | employees in the near future, consider using |
| | | | a Solo 401(k) with a loan feature instead of |
| Advantages of the SIMPLE IRA | | | | a SIMPLE IRA. And, if you have more than 20 |
| | | | employees, look at setting up a regular |
| - Less expensive than a 401(k) | | | | 401(k) as an alternative. |
| | | | |
| Disadvantages of the SIMPLE IRA | | | | To terminate a SIMPLE IRA plan, notify the |
| | | | financial institution that you chose to |
| - A special tax penalty of 25% unique to the | | | | handle the SIMPLE IRA plan that you will not |
| SIMPLE IRA for withdrawals made within the | | | | be making contributions for the next calendar |
| first two years of opening a SIMPLE plan. | | | | year and that you want to terminate the |
| (Congress is considering eliminating this | | | | contract or agreement with it. You must also |
| tax). | | | | notify your employees that the SIMPLE IRA |
| | | | plan will be discontinued. |