A SIMPLE-IRA is a tax-deferred retirement plan
provided by sole proprietors or small businesses (fewer than 100
employees) who do not maintain or contribute to any other retirement
plan. This plan allows you to provide a retirement program for yourself
and your employees without the administrative expenses, government
reporting requirements, and complexity associated with many other
types of retirement plans, such as 401 (k) plans. In a SIMPLE-IRA,
contributions and investment earnings can grow tax-deferred until
withdrawal (assumed to be retirement), at which time they are taxed
as ordinary income.
SIMPLE-IRA is available to businesses that:
- Are a sole proprietorship, partnership, corporation,
or tax-exempt organization.
- Employ 100 or fewer employees who each received
at least $5,000 in compensation from the company during the
- Do not currently maintain another company-sponsored
plan (SEP, SAR-SEP, Keogh, 401(k), or other).
Annually, the maximum employee contribution is $10,000 plus the
employer's contribution. Employers contribution can be a match
of up to $10,000 (or 3% of the employee's compensation for the
year, whichever is lower). Employers may elect to match a lower
percentage, but it cannot be lower than 1% of the employee's compensation.
This lower option is only allowed in two of any five years.
Alternatively, the employer may elect to contribute
a flat 2% of each employee's compensation rather than a match.
With this election, employers must contribute for each eligible
employee regardless of whether the employee participates in the
Individuals over the age of 50 may be eligible
for a $2,000 annual "catch-up" contribution.
Employee's contributions are considered pre-tax contributions
and are not included in your gross income. Employer's contributions
are not taxable either. There is no need to file any separate
form with the IRS.
Withdrawals may incur a 25% penalty if you make them during the
first two years. You may also include a tax penalty of 10% if
you make a withdrawal before reaching the age of 59 1/2. Please
contact Value View to learn about
exceptions to the 10% penalty.