Simple Facts About SIMPLE IRA

A SIMPLE IRA plan is a retirement option, that offers the employer a very simple way of matching his employees’ contributions. Within this plan, an employee can make monthly contributions by way of a small salary deduction, towards his retirement fund, and the employer may also match this contribution, or make a non elective one.

A SIMPLE IRA plan cannot be set up by just any employer. Only employers who have a total of 100 or less employees, who have earned a total of $5000 during the previous year, may choose to opt for this plan.

Tax exempt employers and government entities, are also allowed to maintain a SIMPLE IRA plan. Establishing a SIMPLE IRA plan is simple and requires only three steps:

1. You must adopt the model of the SIMPLE IRA plan, through either Form 5305-SIMPLE or 5304-SIMPLE. You may also use a prototype plan which has been approved by the IRS
2. All the employees who are eligible to make contributions must be given adequate information about the plan in which their contribution will be deposited.
3. A SIMPLE IRA account needs then to be set up for each employee with a bank or another financial institution.

A SIMPLE IRA needs to be set up between the following dates: January 1 and October 1, and is to be maintained on a calendar-year basis. Further more, if an employer maintains another qualified plan, under which his employees receive an allocation of contributions, then the employer cannot make contributions under the SIMPLE IRA plan. This fact is however subject to some exceptions.

Reference: http://www.irs.gov/retirement/article/0,,id=111420,00.html