SIMPLE IRA

When you are scouting for a retirement plan consider two important questions. First ask yourself if you are a business owner or you control a business with less than 100 employees. If your answer is yes, then try to take a look at what the SIMPLE IRA can offer you. Ask yourself again if you would like to have a retirement plan that offers little paper work and expense and if you like flexibility when it comes to contributions. If the answer is yes once again, then it is obvious that the SIMPLE IRA is the perfect match for your needs.

The plan is called the Savings Incentive Match Plan for Employees, and you can expect to meet a plan that is simple with lesser administrative costs. Under this kind of arrangement, the employees and the employer all make contributions to the traditional IRA and is set up for the employees of the company and contributions that will be made will be subject to set limits. To initiate this type of account, the business should have at most 100 employees and the business owner needs to complete one or two forms. And more importantly, no other retirement plan is active.

This type of retirement account is slightly different from the SEP IRA in a sense that in this plan the employees are given the chance to make their contributions. Another reason why the SIMPLE IRA is unique is the fact that the employer is required to make the contribution in behalf of its employees. The contribution or investment that can be sent by the employer may be a matched dollar-for dollar of up to 3 percent of the salary of the employees. The employer can also opt for the flat 2 percent of the pay rate. This plan is known for its high contribution limits if compared to the traditional and the Roth IRAs.

Two contribution limits are available for those interested in this retirement plan. The first limit is for the employee and the second limit is for the employer. If you are an employee for Company A, then what you can contribute to the account will always be a percentage of your compensation which cannot exceed the amount of $10,500. This amount was the one standing for 2008. If you are still working and you are aged 50 years old and above, you can do catch-up and the limit can be tweaked to an additional $2,500.

Company A on the other hand must make a contribution or an investment for every year that it maintains the plan. As mentioned, Company A can match the contribution or the employer or a fixed 2 percent of the income of the employer can be contributed. The contribution should not exceed 3 percent. Even if the employee decides not to submit his or her contributions, the employer must make the investment for the employee.

The company can still lower its matching contribution in the account to say 1 or 2 percent of the total pay of the company in any two of the five years the plan is ongoing.