Simple IRA Plan

For saving money and also enjoying tax benefits, opt for the SIMPLE IRA plan. It is a type of an Individual Retirement Account which provides compounded increase on your savings and is also entitled to a number of tax benefits. Get the benefits of the SIMPLE IRA and enjoy financial stability even in the post retirement period.

The term SIMPLE is referred to as the Savings Incentive Match Plan for Employees. It is mostly an employer sponsored plan for the employees. Even self employed people can also opt for the plan to enjoy various types of tax benefits. Apart from these, partnership firms can also opt for the SIMPLE IRA plan.

Eligibility

There are some eligibility criteria that are required for making the plan. Some of them are:

• The employer needs to employ around 100 or lower employees who had earned an amount of at least $5,000 during the earlier year. All the employees who are based in the job during the calendar year are taken into account.
• For taking part in the plan, the employee needs to get a compensation of at least $5,000 for any two years. Once such conditions are fulfilled, you are eligible to be covered under the plan.
• While maintaining the SIMPLE IRA plans, the employer should not hire more than 100 employees.

Advantages

The SIMPLE PLAN is funded on the basis of pretax salary reduction. Like the various other retirement savings plan, the deductions made here are also entitled to Social Security, Medicare and other benefits. Compared to the other employer sponsored plans, the limits of contribution are lower in SIMPLE plans. The administration costs are also lower and can be easily handled.

A minimum limit of contribution is required on the part of the employer. He or she can either make matching contributions or one can as well make a flat 2% contribution of the compensation to the employees. For the second option, the employees need to get at least $5,000 for the given year.

The SIMPLE IRA plan can also be funded with a basic IRA or a 401(k) plan. One also cannot change the plan into a Traditional IRA without being entitled to a wasting period. The wasting period is the period of two years from the date when the employees first took part in the plan.

The limit of contribution in the plan SIMPLE IRA for the year 2009 is $11,500 compared to $10,500 for the year 2008. The deferral contributions need to be deposited into the account by the 30th day which follows the month for which the deferral is applied. Employees who are eligible can defer the full amount of their compensation up to the annual dollar limit by being covered under the plan.