Are SIMPLE IRAs tax
Also available are "SIMPLE" IRA
accounts, which are salary reduction retirement plans
intended for small businesses. As many as 36 million people
working for companies with 100 or fewer employees could
benefit from the small business pension plan, called SIMPLE,
for Savings Incentive Match Plan for Employees. Employees
can make tax deductible contributions of up to $11,500 ($14,000 for
participants age 50 or older) per tax year. Employers match
the contribution. The money isn't taxed until withdrawn.
A SIMPLE plan can be maintained by an employer that meets
the two (2) following qualifications:
in the previous calendar year had no more than 100 employees
who earned compensation of $5,000 or more; and
does not maintain any other retirement plan.
To be eligible to contribute to a SIMPLE IRA an employee
must reasonably be expected to earn $5,000 or more; provided
at least $5,000 of earnings was received by the employee in any
tax years. Employees make elective salary reduction
contributions of up to $11,500 and
employers make either a matching contribution or a fixed
non-elective contribution. All contributions are fully
vested and non-forfeitable when made. Employee contributions
are subject to FICA tax withholding.
If an employer chooses matching contributions the employee's
contribution is matched by the employer up to 3% of the
employee's compensation. If an employer chooses the
non-elective contribution the employer must contribute 2% of
the employee's compensation.
Simple IRA Distributions
Distributions from SIMPLE IRAs are subject to the regular
distribution tax rules. However, during the first two (2)
years the early distribution penalty tax is 25%.
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