Given the familiarity that most people have with the 401k structure, it is no surprise that so many people are confused when their employers introduce new retirement concepts into the workplace. The SIMPLE IRA is one of those concepts simplestartllc that employees often find confusing when they are first presented. The good news is that the characteristics of a SIMPLE plan are in keeping with plan’s name. SIMPLE IRA rules really are much easier to understand for employees, and much simpler to manage for employers, than the traditional 401k plan.
What is a SIMPLE IRA?
Before you can understand the SIMPLE IRA rules, however, it is helpful to understand what a SIMPLE plan is. The acronym stands for Savings Investment Match Plan for Employees. SIMPLE plans are less expensive to administer for employers, and are thus a perfect option for companies that have fewer than one hundred people on the payroll. SIMPLE IRA rules require that employers match what their employees contribute to their individual accounts, up to a maximum of 3 percent of income. The only alternative to the matching requirement is for the employer to opt for a contribution that is non-elective. Under those circumstances, the employer can contribute any percentage under three percent, regardless of what you contribute.
Unlike 401k plans that often require you to be employed by the contributing company for a set period of time before you actually own your account, SIMPLE IRA rules define the account as yours from the moment it is established. You receive immediate investiture! If you therefore move to a different company, you own the entire amount in the fund, including the employer’s contributions. This is markedly different from the 401k requirements that only enable you to be completely vested in your account after several years of employ with the firm. You also maintain complete control over your account and the investments within it – though you should probably receive assistance from a financial planner before making any big decisions.