Rules of Simple IRA Your Business Needs to Know

A Savings Incentive Match Plan for Employees plan, better known as a SIMPLE plan, is an IRA-based retirement plan available to employers with fewer than 100 employees.

Under a SIMPLE IRA plan, an employee can contribute a portion of his pay to his SIMPLE IRA account. An employee can make a maximum contribution of $9,000, ($10,500 if age 50 and over), to his SIMPLE IRA account for 2004. You, the employer, are required to make a contribution for every worker who receives $5,000 or more in compensation.

You can match up to 3% of the salary for the employees who contribute to their SIMPLE IRA account. You only have to match for those employees who contribute to the plan. In any 2 years out of a 5 year period, after notification to the employees, you may elect a lower matching contribution percentage but not less than 1% of salary.

Your business also has the option to select a "non-elective" mandatory company match of 2% of annual salary for every employee. Under the "non-elective" contribution formula, even if an eligible employee doesn't contribute to his SIMPLE IRA, you must still contribute to his account 2% of his salary.

Advantages of the SIMPLE IRA

• Less expensive than a 401(k)

Disadvantages of the SIMPLE IRA

• A special tax penalty of 25% unique to the SIMPLE IRA for withdrawals made within the first two years of opening a SIMPLE plan. (Congress is considering eliminating this tax).

• A SIMPLE IRA is much less flexible than a 401(k) plan.

• Employer must make contributions for all eligible employees.

• No contributions can be made to other qualified retirement plans.

• All contributions are immediately vested, meaning all contributions belong right away to the employee.

• A SIMPLE IRA plan can only be terminated prospectively, beginning no earlier than the next calendar year. Contributions must continue until the plan is terminated.

• A SIMPLE IRA must be set up at least 60 days prior to year end. Thus, October 1, is the last day to set up a new SIMPLE IRA for the calendar year.

• No loans allowed.

While the SIMPLE IRA make senses under certain circumstances, this plan comes with a lot of strings attached. If your business has no employees and you do not expect to hire employees in the near future, consider using a Solo 401(k) with a loan feature instead of a SIMPLE IRA. And, if you have more than 20 employees, look at setting up a regular 401(k) as an alternative.

To terminate a SIMPLE IRA plan, notify the financial institution that you chose to handle the SIMPLE IRA plan that you will not be making contributions for the next calendar year and that you want to terminate the contract or agreement with it. You must also notify your employees that the SIMPLE IRA plan will be discontinued.

About The Author

Daniel Lamaute, CEO of Lamaute Capital, Inc. (www.InvestSafe.com) specializes in setting up retirement plans. You may visit http://www.investsafe.com to access a free calculator that will help you estimate what your maximum contribution might be under different plans.

---

The 8 Biggest Mistakes When Designing Portfolios - and How To Avoid Them

Are you as good an investor as you think? Do... Read More

Keep Stock Market Investment Profits

Have you had one of those huge investment winners ?... Read More

Find Your Investing Soulmate on the Jersey Turnpike

As a followup to a previous column, "Irreconcilable Differences," I... Read More

Franchise Investing, Franchise Opportunities and Franchising Renewals

Have you considered buying a franchise instead of trying to... Read More

Is Offshore Banking for You?

You've probably heard about people who keep their money offshore.... Read More

The Convertible Craze Brightens The Future Of Equities

Convertibles are stealing the show with their safe investment image... Read More

5 Day Trading Tips for Success

1. How to Treat Gap Openings A gap up or... Read More

Find a Methodology and Minimize Investment Madness

There are many reasons to be investing these days, and... Read More

Chinas Great Missed Opportunity

While a U.S. Representative to the Asian Development Bank Executive... Read More

Get Wealthy With the Rule of 72

When it comes time to retire how many people would... Read More

Building The Foundation For Wealth

You wouldn't build your home on anything less than a... Read More

Now is the Time to Invest for Your Retirement!

Yes, it's the time we've all been waiting for?tax season!... Read More

Your Portfolio and ?Old Ironsides?

The USS Constitution first ventured into the waters in 1798.... Read More

How to Choose the Right Share Class

You'll want to opt for the no-load or institutional share... Read More

To Retire Rich, Save and Invest Early

If you want to retire rich, start saving investing early.... Read More

Annuity Help

Many people today are looking for annuity help. The biggest... Read More

Why have Investment Plans for the Stock Market

If you do not have an investment plan in the... Read More

An Introduction to Offshore Investing

Once upon a time, offshore investment strategies were spoken of... Read More

An Economical Retirement Investment Plan

The practice of economy, directed toward a retirement investment plan... Read More

Buying a Home - Your BIGGEST Investment

This column has often focused on intangible investments like stocks... Read More

Making Every Penny Count

More and more workers are leaving their jobs and taking... Read More

Hedge Fund 101 - Make Money with Hedge Funds

Investors are always looking for the best investments that will... Read More

Dumb Money

Many people have, at one time or another, taken some... Read More

Investing In or Owning Drug Lab Properties

Clean Up (includes the insides and the outside of a... Read More

The Real Cost of a Bad Habit

What is the value of a good habit? Think of... Read More

Can Your Annuity Do This?

Okay, so I can tell you I have sat in... Read More

Learn How to Lose and Risk Management

One of the leading traders on Chicago Mercantile Exchange, because... Read More

Trading Tips No 7: Developing a Casino Mentality for the Day Trader

I submit that the successful day trader would profit well... Read More

How to Calculate the Value of Your U.S. Savings Bonds

If you're like many Americans over the age of 55,... Read More

Finding a Broker

"Hey Joe! I need help finding a broker. I notice... Read More

Types of Investment

The word 'investments' is one that most of us are... Read More

Overbought/Oversold

Has your broker ever told you that a stock is... Read More

Risk and Reward

If you are doing your own investing in the stock... Read More