Savings Incentive Match Plan for employees - SIMPLE-IRA

The savings incentive Match Plan for Employees (SIMPLE-IRA) was designed for the small employer with fewer than 100 employees that has no other qualified retirement plan.

The savings incentive Match Plan for Employees (SIMPLE) was designed for the small employer with fewer than 100 employees that has no other qualified retirement plan. With the SIMPLE-IRA, an employee will have his or her own IRA set up and may make elective contributions up to the lesser of $6,000 or 100 percent of his or her compensation. The $6,000 limit will be indexed in the future.

Beneficiary designations are important, so be sure yours are up-to-date. If there has been a marriage, divorce, death, or birth, you may want to change the beneficiary designation. If you are not named as the beneficiary on your spouse's retirement account, you won't be entitled to the money if he or she should die.

The employer must put some money into a SIMPLE-IRA for the employee and has the option either to match the employee's contribution dollar for dollar up to 3 percent of compensation or to use an alternative matching contribution method of making a flat 2 percent contribution of the employee's compensation.

There is immediate vesting of the employer's contribution, which means that it belongs to the employee immediately. Withdrawals taken before the age of 59 1/2 will be subject to an IRS penalty. Withdrawals made within the first two years that an employee is in the plan are not subject to the 10 percent penalty; instead, they subject to a 25 percent penalty. Ouch! They don't want you messing with your retirement dollars. These plans are easy to set up but must be set by October 1 of the preceding year. Most large mutual fund companies have standard plans they can offer you.