• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar

What Is SIMPLE IRA Plan? Definition, Rules & Limits

What Is SIMPLE IRA Plan? Definition, Rules & Limits

Definition – SIMPLE IRA Plan

According to IRS, SIMPLE IRA plan stands for Savings Incentive Match Plan for Employees. SIMPLE IRA plan allows employees and employers to contribute to traditional IRAs set up for employees. It is ideally suited for a start-up retirement savings plan for small employers not currently sponsoring a retirement plan.

SIMPLE is a kind of retirement plan that can only be established by employers. Even self-employed individuals can enroll for SIMPLE IRA.

The employer is entitled to claim a tax deduction for the contributions made to the SIMPLE IRA. The employer makes either matching or non-elective contributions to each eligible employee’s SIMPLE IRA and employees may make salary deferral contributions.

SIMPLE IRA – Contribution Limits for the year 2017

The limits for contributing to SIMPLE IRA plans are lower than other types of retirement plans that are provided by the employers like Section 402(g), 401(k), 401(a), and 403(b) plans.

The limits have substantially increased since the start. Currently, for the year 2017, the contribution limits to SIMPLE are  $ 12,500 for the individuals under the age of 50 and $ 15,500 for individuals above the age of 50.

The tabular representation of the limits is given below:

SIMPLE IRA Plan

Rules for SIMPLE IRA Plan

  • An eligible employer can only establish a SIMPLE IRA. The definition of an eligible employer is that his company doesn’t consist of more than 100 employees. If an eligible employer starts SIMPLE IRA when he was having less than 100 employees, such employer can continue to be “eligible” for two years after crossing the 100 employees limit.
  • It is not mandatory for employees to make regular contributions to the SIMPLE retirement account.
  • The SIMPLE retirement plan requires a minimum contribution from the employer. The employer can match the contributions of employees dollar for dollar up to 3% of the employee’s compensation. Otherwise, the employer can choose to contribute a flat 2% of compensation for each employee with at least $5,000 in compensation for the contributing year irrespective of employee contribution.
  • The SIMPLE plan can be funded with either an IRA or a 401(k). There is almost no benefit to funding it with a 401(k) as there are lower contribution limits of SIMPLE.
  • You cannot rollover a SIMPLE IRA to a Traditional IRA without waiting period of two years from the date the employee first participated in the plan.

For more information on the topic, you can see Publication 560 on Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans)

We have created some useful tax calculators like Simple Tax Estimator, Itemized Deduction Calculator, 401k Calculator etc.

Now MAC operating system users can download the above templates in Apple’s Numbers Application also from the link below:

Federal Income Tax Apple Numbers Templates

These templates can help you easily calculate your federal income tax. These templates are free to download and easy to use with no limitations.

Disclaimer: Interpretation of the above topic is for education purpose and cannot be considered as a legal advice. It is highly recommendable to consult a CPA or tax consultant.

We thank our readers for liking, sharing and following us on different social media platforms.

If you have any queries please share in the comment section below. I will be more than happy to assist you.

Filed Under: Tax Glossary

You are Here: Home / Tax Glossary / What Is SIMPLE IRA Plan? Definition, Rules & Limits

About Shabbir Bhimani

I have worked in Excel and like to share functional excel templates at ExcelDataPro.

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

ExcelDataPro

Free Excel Pro Templates

  • Glossary
    • Accounting Glossary
    • HR & Payroll Glossary
    • Tax Glossary
  • Templates
    • Accounting
      • Financial Analysis
      • Financial Statement
    • Educational
    • Taxation
      • Federal Income Tax
      • GST
      • UAE VAT
      • UK VAT
    • Human Resources
      • HR & Payroll
      • HR Metrics
    • School Management
    • Social Media
    • Sales-Marketing
    • Personal Finance
    • Other
      • Health & Fitness
  • Functions
  • FAQ’s
  • Blog
  • Home
  • Contact
  • Privacy
  • Terms

© ExcelDataPro 2023. Content Licensed Under Creative Commons with Attribution Required

This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish. Cookie settingsACCEPT
Privacy & Cookies Policy

Privacy Overview

This website uses cookies to improve your experience while you navigate through the website. Out of these cookies, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may have an effect on your browsing experience.
Necessary
Always Enabled
Necessary cookies are absolutely essential for the website to function properly. This category only includes cookies that ensures basic functionalities and security features of the website. These cookies do not store any personal information.
Non-necessary
Any cookies that may not be particularly necessary for the website to function and is used specifically to collect user personal data via analytics, ads, other embedded contents are termed as non-necessary cookies. It is mandatory to procure user consent prior to running these cookies on your website.
SAVE & ACCEPT