These days the employers secure not only the present but also the future of their employees by taking care of their retired life through in-house pension plans. One of most simple retirement plan is the Savings Incentive Match Plan for Employees Individual Retirement Account, commonly referred to as SIMPLE IRA plan.
Ideally, a start-up retirement savings plan is suited for small employers who currently do not have a retirement plan.It is applicable for an employee receiving a minimum of $5,000 in compensation for the preceding two years and expected to receive the same in the coming year. The employee salary reduction contributions are limited to $12,500 per year with $3,000 as a catch-up allowance for the ones over the age of 50 years. There are two types of contributions in SIMPLE IRA plan that an employer can choose from:
- 2% non-selective contribution – 2% of each eligible employee’s compensation irrespective of the amount the employee deferred
- 3% matching contribution – Matching the employee’s contribution for up to 3% of the compensation amount
Apart from this, the employer cannot make any other contribution.
An employee can stop contributing to this simple retirement plan at any time they want to. However, it must be remembered that the amount being contributed is tax-free at present and taxable only on withdrawal. However, if individuals retire and decide to withdraw the amount, as senior citizens they are likely to attract far lesser tax rate as compared to what is applicable at present. Always fully vested to the employee, the simple retirement plans are not prone to any influence from the employers. Also, SIMPLE IRA plan guarantees the most stable returns beneficial in the post-retirement life.