SIMPLE Plans

A SIMPLE plan (Savings Incentive Match Plan for Employees) is a simplified retirement plan created by the Small Business Job Protection Act of 1996 especially for small and growing businesses, with generally, 100 or fewer employees that do not currently offer a qualified retirement plan. SIMPLE plans allow employees to defer a specific percentage or dollar amount into a SIMPLE IRA.

Contributions

The current maximum deferrals are as follows:

• $11,500 for 2011, adjusted by cost of living allowances (COLA) for future years, if applicable.

Catch Up Contributions

If an employee has or will attain the age of 50 during the year, he or she will be allowed to make additional “catch-up” contributions as follows:

• $2,500 in 2011 and beyond

Eligibility

In addition to salary deferrals, employers may make an additional contribution to each eligible employee. The employer can choose from the following:

• A matching contribution of up to 3% of an employee’s compensation or an across the board non-elective contribution of 2% of compensation for all eligible employees.
• The employer must notify the employee which contribution type, matching or non-elective, will be made for the following year 60 days before the year begins.

Penalties

If an employee under 59½ withdraws an amount from a SIMPLE IRA before the end of a two-year period following the initial contribution:

• The distribution amount will be subject to a tax (penalty) of 25%, unless the distribution is due to death, disability, expenses for higher education, the purchase of a first home or certain other qualifying reasons.

This information is for reference only and does not purport to give tax or legal advice.  Please consult your tax or legal professional for more information on this material.