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Lecture Employee benefits and retirement planning - Chapter 23: SIMPLE IRA

This chapter briefly covers the SIMPLE (Savings Incentive Match Plans for Employees) IRA. Advantages and disadvantages are discussed following a section on when an employer might want to use a SIMPLE plan. Tax implications are covered next, followed by information on plan installation and ERISA requirements. | What is it? SIMPLE stands for “Savings Incentive Match Plan for Employees” IRA means Individual Retirement Account (or Individual Retirement Annuity) Employer-sponsored plans in which contributions are made to IRAs owned by employees. Copyright 2009, The National Underwriter Company When is it indicated? When the employer wants a plan that is easy to install and administer When the employer wants a simpler alternative to a qualified retirement plan When the employer has 100 or fewer employees (earning $5,000 or less) When a self employed individual wants to save for retirement Copyright 2009, The National Underwriter Company Advantages Plan adoption can be accomplished by merely completing an IRS form. Benefits are entirely portable by participants, since they are in IRAs Participants benefit from positive investment performance (but risk of poor results) Funding achieved in part through salary deferrals by participants Copyright 2009, The National Underwriter Company Disadvantages Unlikely to provide an adequate retirement, particularly for employees who enter the plan at older ages Annual contributions restricted to lower amount--$11,500 in 2009-- than would be available in certain other plans Employer may not maintain any other plan covering the same employees. Copyright 2009, The National Underwriter Company Tax Implications Employer must have 100 or fewer employees In addition to $11,500 limit (in 2009) on salary reduction contribution, employees 50 or over may make catch-up contributions of up to $2,500 (in 2009). Employer must make either: Dollar for dollar match contribution up to 3% of compensation, or 2% nonelective contribution for all eligible employees Copyright 2009, The National Underwriter Company Tax Implications (cont) A SIMPLE IRA may allow the maximum retirement plan contribution for a self-employed person with limited income, such as from moonlighting. This is because qualified plan contributions are subject to various . | What is it? SIMPLE stands for “Savings Incentive Match Plan for Employees” IRA means Individual Retirement Account (or Individual Retirement Annuity) Employer-sponsored plans in which contributions are made to IRAs owned by employees. Copyright 2009, The National Underwriter Company When is it indicated? When the employer wants a plan that is easy to install and administer When the employer wants a simpler alternative to a qualified retirement plan When the employer has 100 or fewer employees (earning $5,000 or less) When a self employed individual wants to save for retirement Copyright 2009, The National Underwriter Company Advantages Plan adoption can be accomplished by merely completing an IRS form. Benefits are entirely portable by participants, since they are in IRAs Participants benefit from positive investment performance (but risk of poor results) Funding achieved in part through salary deferrals by participants Copyright 2009, The National Underwriter Company .