SIMPLE Retirement Plans

Maximum Salary Deferral:

YearUnder age 50Age 50 and over2013$12,000$12,000*2014$12,000$12,000*

*For employees age 50 or over, a $2,500 “catch-up” contribution is also allowed (in 2013 and 2014)

What are SIMPLE Retirement Plans?

  • SIMPLE Plans can be established by employers with 100 or fewer employees who received at least $5,000 each in compensation from the employer in the preceding year, provided the employer does not maintain another qualified retirement plan, 403(b) annuity plan, 501(c)(18) trust, SEP, or governmental plan. An employer who contributes to a collectively bargained plan for some employees may set up a SIMPLE 401(k) plan or SIMPLE IRA for other employees; however, those employees who participate in the collectively bargained plan still count towards the 100-employee limit. If an employer goes over the 100-employee limit as its business expands, the employer may continue to maintain a SIMPLE plan for another two years.
  • SIMPLE plans maybe set up by self-employed persons as well as corporations. Self-employed persons receiving earned income from an employer count as “employees” for determining the 100-employee limit.
  • SIMPLE plans are not subject to the anti-discrimination or top-heavy rules usually applicable to tax qualified retirement plans
  • SIMPLE retirement plans can be established in two ways: Simple IRA, Simple 401(k)
  • Employee elective salary deferrals
  • Required employer matching contributions or employer “non-elective” contributions
  • Match employee contributions dollar-for-dollar up to 3% of actual employee compensation for the year (or match a percentage as low as 1% in no more than two out of the five years ending with the year of the contribution), or
  • Make a nonelective contribution for each eligible employee of 2% of annual compensation (up to a maximum compensation of $245,000 for 2011), regardless of whether the employee contributes.

All Contributions to a SIMPLE IRA are vested immediately to the employee , including those made from the employer

Contributions to SIMPLE IRAs and the earnings are not taxed until withdrawn. The usual 10% penalty tax applies to early withdrawals (generally before age 59½, with the usual exceptions for IRAs). However, if the withdrawal occurs within the first two years of plan participation, the penalty tax is 25% if the participant is under age 59½. Otherwise, SIMPLE IRA distributions are taxed the same as IRA withdrawals.