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Simple IRA |
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A SIMPLE is a salary reduction arrangement similar to a 401(k) plan. However SIMPLE contributions are deposited into a unique SIMPLE IRA. This IRA can only accept contributions under a SIMPLE. No other IRA contributions are permitted.
Salary Reduction Employee Contributions
• Any contributions made by employees to their SIMPLE-IRA accounts are pre-tax. Each eligible employee may contribute up to $10,000* of compensation via salary reduction each year to his or her SIMPLE-IRA account. (No maximum percentage of compensation applies.)
• If you are age 50 or older, you are eligible to make an additional $ 2500* “catch-up” contribution.
Flexible Employer Contribution Levels
• SIMPLE-IRA contributions made to the accounts of eligible employees are deductible as legitimate business expenses for federal tax purposes.
• In any given year, your company has two different options for making the required contributions to your employees’ SIMPLE-IRA.
• 3% Match: Match dollar-for-dollar the amount that each eligible employee contributes to his or her own account, up to 3% of the employee’s compensation. This method is based on employee contributions, so if an employee does not contribute, the employer does not have to contribute either.
• Non-Elective 2% Contribution: Contribute 2% of compensation to the account of each eligible employee- based on a maximum of $220,000* in annual compensation – regardless of whether an employee has made any contribution that year to his or her own account.
*The Internal Revenue Service will adjust these amounts to reflect changes in the cost of living. Figures shown are for 2006.
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