Understanding SIMPLE Plans
A Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) is an employer-sponsored retirement plan, similar in some ways to 401(k) and 403(b) plans.
According to Internal Revenue Service (IRS) regulations, only employers with fewer than 100 employees—and which do not offer other retirement plans—may establish a SIMPLE IRA. All employees who received $5,000 or more in compensation from an employer during any two previous calendar years and who are expected to receive $5,000 or more in compensation this year are eligible to participate in the employer’s SIMPLE IRA plan.
The Employer's Two Alternatives
SIMPLE IRAs require employers to make a minimum contribution to the account, while employees are not required to contribute. The employer has two alternatives when it comes to making these contributions. The first is to match the amounts that employees make toward their own elective-deferral contribution up to 3% of the employee's annual compensation.
The second alternative is for the employer to make a flat 2% nonelective contribution to all qualified employees, regardless of whether the employee makes any contributions.
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Limitations of a SIMPLE Plan
A Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) has lower contribution limits than most other employer-sponsored retirement plans. For 2021 the limit for the sole-proprietor, (they are never employees of their business) is $13,500. Those aged 50 or older can make a catch-up contribution of an extra $3,000 for 2021. contributions to your own account are an adjustment to income line 16 of schedule 1. and are enter through the section for keogh.simple
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A SIMPLE IRA can only be rolled over to a traditional IRA after a two-year waiting period, beginning from the day that the employee first participated in the plan
