What It Takes To Make A Simple IRA Contribution
A Savings Incentives Match Plan for Employees Individual Retirement Account or SIMPLE IRA is an employer-sponsored plan, usually undertaken by a small business with less than 100 employees and whose purpose is to provide a retirement benefit plan for these employees.
Simple IRA is usually utilized by these employers to provide an alternative to a profit sharing plan. Under this arrangement, the employees have full control of these IRA accounts.
Only an eligible employer with less than 100 employees can avail of a Simple IRA. If the business expands the employer who already has an established Simple IRA can still avail of the plan two years after the workforce extends to more than 100 employees.
In Simple IRA contributions, the employee may not be required to make regular contributions to their Simple IRA. An employer is required to make certain minimum contributions to the plan. There are two types of Simple IRA contributions. The first is salary deferral and they can go up to 100% of the employee’s compensation. But must not exceed the $10,000 mark for 2006, $10,500 for 2007; catch up contributions for plan investors over the age of 50 is pegged at $12,000 for 2006 and $13,000 for 2007. Here is a guide on the employer’s contributions: 1. The employer’s Simple IRA contribution can match the employees’ contributions dollar for dollar up to 3% but is subject to limitations pegged at a maximum of $10,500(2007); and for investors over 50 years limit is set at $13,000(2007). 2. Or the company may pay a flat rate of 2% of the respective compensation for each employee receiving at least a compensation of $5,000 a year regardless of what amount the employee contributes. Before Simple IRA contributions are made or the plan becomes effective, the employees must first be informed about the IRA and where the Simple Ira contributions will be deposited. The information must be given before the employee’s election period. The election period is 60 days prior to January 1 of a calendar year. A Simple IRA plan is required for each eligible employee and can either be in a trust (Form 5305-S) or a custodial account (Form 5305-SA). Since the Simple IRA is owned and fully controlled by the employee, the Simple IRA contributions must be sent to the financial institutions where the plan is maintained. Simple IRA contributions are managed by financial institutions. These can be invested in individual stocks, mutual funds and similar types of investments. The Employees being the owners of the fund can move their Simple IRA assets from one Simple IRA plan to another. For transparency purposes each participating employee must receive an annual statement of the account which would indicate the amount contributed to their SIMPLE IRA for the year. Depending on your employer’s rules, you are eligible to contribute to a Simple IRA plan if you are a regular employee and earned a salary working for a Simple IRA eligible employer eligible who has availed of the plan. There is no age requirement. Unlike traditional IRA, the employer can still pay for the Simple IRA contributions of a person over 70.5 years old. However employees covered by a labor union agreement whose retirement benefits were part of a bargaining done in good faith by the employee, employer and the union and nonresident alien employees who are not receiving U.S. source wages salaries and other compensation from an employer do not need to be covered by the Simple IRA contribution plan.
Ira Contribution
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