SIMPLE IRAs: Savings Incentive Match Plan for Employees

SIMPLE IRA

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SIMPLE IRA

A SIMPLE IRA is another retirement plan that allows employees to defer a portion of their salary into a retirement fund. SIMPLE IRAs are available to any small business, and employers who offer a SIMPLE IRA plan cannot offer any other form of retirement plan. Employers are required to offer a matching contribution plan of either up to 3 percent of income the employee elects to contribute, or 2 percent of income if the employee elects to decline contribution to his or her own account. In addition, employees are 100 percent vested in their funds at all times. Participants who wish to withdraw funds from their SIMPLE IRA before age 59 ½ may be subject to a 10 percent tax penalty. If a participant makes a withdrawal within the first two years of establishing the plan, the 10 percent additional tax is increased to 25 percent. However, after a SIMPLE IRA plan has been established for at least two years, funds in a SIMPLE IRA may be transferred tax-free to another tax-deferred account, such as an IRA. 

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