“Simple” is the world looks so simple and sounds so simple but is it really what it really means. Let us get introduce to the newest meaning of this world in the world of retirement investment plans. Simple is not just now so ordinary and simple as you are supposing but it has come with something very different and important to understand. Simple as referred to IRA is by the way Savings Incentive Match Plan for Employees (SIMPLE) IRA.
This simple ira plan is a retirement plan for employers and especially self-employed individuals The SIMPLE IRA allows eligible employees to contribute part of their pretax compensation to the plan. This means the tax on the money is deferred until it is distributed. This contribution is called an elective-deferral or salary-reduction contribution.
A SIMPLE IRA plan provides small employers with a simplified method to contribute toward their employees’ and their own retirement savings. Employees may choose to make salary reduction contributions and the employer is required to make either matching or non-elective contributions. Contributions are made to an Individual Retirement Account or Annuity IRA set up for each employee a Simple IRA. One more additional fact we came across with is that a simple ira plan account is an IRA and follows the same investment, distribution and rollover rules as traditional IRAs.
After getting acquainted with this new simple meaning of the word simple in the world of ira, now is the time to talk about some criteria. Research suggests two basic criteria. First, your business must have 100 or fewer employees (who earned $5,000 or more during the preceding calendar year). In addition, you cannot currently have another retirement plan, if you are among the thousands of business owners eligible for a SIMPLE IRA plan.
Now let us meet with some advantages of this simple ira.
- SIMPLE IRA plans are easy to set up and run – your financial institution handles most of the details.
- Employees can contribute, on a tax-deferred basis, through convenient payroll deductions.
- You can choose either to match the employee contributions of those who decide to participate or to contribute a fixed percentage of each eligible employee’s pay.
- You may be eligible for a tax credit of up to $500 per year for each of the first 3 years for the cost of starting a SIMPLE IRA plan.
- Administrative costs are low.
- You are not required to file annual financial reports.