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Simple IRA

Savings Incentive Match Plan for Employees (SIMPLE IRA)

A Simple IRA plan is a retirement plan for employees who work for a small business that has 100 or fewer employees who earn at least $5,000 a year.  

Funds for a Simple IRA plan come from voluntary employee contributions and mandatory matching or non-elective contributions by the employer.

In 2016, eligible employees may defer up to $12,500 of their wages. Employees age 50 and over can make an additional “catch-up” contribution of $3,000. Limits are indexed for inflation.  The amounts are the same for 2017.

Distributions of a Simple IRA are generally subject to the regular IRA rules.  Unless an exception applies, if you withdraw money from your Simple IRA before age 59.5, you will pay a 10% penalty. If you withdraw money during the first two years of enrollment (and are under 59.5), your early distribution penalty is 25%.

Some of the advantages of participating in a Simple IRA:

  • Your before-tax contributions reduce your current taxable income through salary reduction.
  • You don’t pay state and federal taxes on contributions and earnings until you withdraw the money.
  • Your employer will match your contributions, dollar-for-dollar, up to 3% percent.
  • You are immediately 100% vested in employer contributions.
  • You contribute through automatic payroll deductions.

For more information, visit the IRS website at:

https://www.irs.gov/retirement-plans/plan-sponsor/simple-ira-plan