Definition

• A Simple IRA is an employer created IRA plan that allows employers to construct a simple way for employees to save for retirement. For an employer to qualify for a Simple IRA plan, the company must have less than 100 employees and all employees are included in the Simple IRA program. Employees must make at least $5000 in order to contribute. Part-time employees are not exempt. When a contribution is made, it is made directly to an Individual Retirement Account or Individual Retirement Annuity specified for the employee.
  
  

Small Company Benefit

• Small companies generally do not have the same cash flow as larger companies and are thus unable to offer extensive benefit packages. By offering a Simple IRA, owners and employees can save toward retirement and lower their adjusted gross income. Employers may elect to match contributions employees make, but are not required to. If they are not making matching contributions, they are required to make nonelective contributions for which they receive a tax deduction. Contributions made by employers are automatically vested, unlike 401(k) plans, which may take years of service before being considered 100% the employee's.
  
  

Employee Loyalty

• Many small companies are unable to afford 401(k) programs and their maintenance. A Simple IRA program gives employees a way to start saving for retirement. Offering benefits such as these is one way to retain loyal employees who will often opt to stay or go to an employer who offers some sort of retirement package versus one who does not. Employees control the investments in their own IRA's.
  
  

Employee Option

• Employees can not opt out of the Simple IRA program established by an employer. While this seems restrictive, the flexible part of this is that employees do not have to contribute to the plan. So while they unable to opt out of the plan, they are not required to defer any income by making contributions. Of course, many employees enjoy the ability to save for retirement and lower their adjusted gross income in any particular year by making contributions. Loans are not permitted in a Simple IRA as they are in a 401(k) plan.
  
  

Multiple Contributions

• Employees may participate in more than one employer plan in the same year. The salary reduction must remain in accordance with limitations set forth in section 402(g) which creates an aggregate value for contributions. The plan may be another Simple IRA or another type of deferred compensation plan such as a 401(k). It is the employees' responsibility to make sure they are in compliance with the maximum amounts they are able to defer.