The Savings Incentive Match Plan for Employees-IRA replaced the SARSEP-IRA for plans established after January 1, 1997. A SIMPLE-IRA is specifically designed for companies with less than 100 employees. Companies with more than 100 employees cannot use the SIMPLE Plan. Additionally, companies cannot maintain or contribute into any other type of retirement plan. In a SIMPLE Plan, contributions are made by both employer and employee. Contributions are made on a pre-tax basis, thus giving added tax benefits to the plan's participants.
How a SIMPLE Plan works
Employees can contribute 100% of their earned income up to a maximum of $7,000 per year into a SIMPLE Plan. There is a mandatory employer match. This can be either a 100% match on the first 3% of employees' total compensation for all eligible employees who elect to participate in the plan, or a 2% match on total employee compensation regardless of employee participation. A SIMPLE plan can work great for a family-run business. A husband and wife business can put in up to $24,000 combined depending on their compensation. A SIMPLE Plan offers you and your employees the opportunity to contribute money on a pre-tax basis into a retirement account. SIMPLE Plans are easy to set up and administer and have minimal administrative costs.
