Mar 31 2011

What is a SIMPLE IRA?

Category: Finance


SIMPLE IRAThe SIMPLE in a “SIMPLE IRA” is actually an acronym that stands for Savings Incentive Match Plan for Employees. It is essentially a taxed deferred investment/retirement account, for small businesses, that allows employers to match employee contributions, similar to a 401k plan. With a SIMPLE IRA plan, employees have the ability to opt into salary reduction contributions. The employer will then match those contributions, usually up to a certain percent. The contributed funds are then invested according to the employee’s objectives and risk/return requirements. A SIMPLE IRA will often have lower contribution limits than most other types of employer-provided retirement plans. The limit in 2010 is $11,500 as compared to $16,500 for convention defined contribution plans, like a 401k. The advantage of setting up a SIMPLE IRA over a traditional 401k, in most cases, will often come down to lower start up costs and maintenance.

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