Generally, employers (including tax-exempt and governmental employers) with 100 or fewer employees who earned $5,000 or more in compensation during the last calendar year may establish a SIMPLE IRA plan. For purposes of the 100-employee limitation, all employees employed at any time during the calendar year are taken into account, regardless of whether they are eligible to participate. An employer may not establish a SIMPLE IRA plan in any calendar year during which the employer maintained or contributed to any other plan.
You may continue to use the SIMPLE IRA plan for no more than two years after the most recent calendar year in which you exceeded the 100-employee limitation.
Generally, any employee who earned at least $5,000 during any two prior calendar years and who is expected to earn $5,000 in the current year. As the employer, you may reduce these requirements, but you may not make them more restrictive. You may choose to exclude those employees covered under a collective bargaining agreement for which benefits were the subject of good faith bargaining
No. The only cost associated with the plan is an annual $25 administrative fee charged directly to each mutual fund account for each participant. The fee is waived for any account with a balance of $5,000 or more, for individuals with $50,000 or more, or for households with $100,000 or more invested with T. Rowe Price. Assets held in a 529 plan, a plan that is part of the Century Program, or assets held in a plan that was/is recordkept in the Retirement Plan Services division of T. Rowe Price are not counted toward these limits. Total fees for any SIMPLE IRA investor will not exceed $100, regardless of the number of mutual funds held. There is a closeout fee of $25 per mutual fund when your SIMPLE IRA assets are distributed, unless the fee has been paid previously.
Yes. However, there are two options. No matter which contribution type you choose, you must notify each employee of the contribution type and amount of contribution within a reasonable period of time before the employee's 60-day election period for the calendar year. (See Employee Notification Requirements below for an explanation of the 60-day election period.)
One of the following contributions must be made each year:
Matching Contributions: Annual limit of $11,500 in 2009 ($10,500 in 2008) and $14,000 if employee is age 50 or older ($13,000 in 2008).
- Each calendar year, the employer may make a dollar-for-dollar match of an employee's contribution up to a limit of 3% of compensation, or
- The employer may reduce the matching contribution limit to as low as 1% in no more than two years out of five continuous calendar years.
Nonelective Contributions: Annual limit of 2% of compensation.*
- For any calendar year, the employer may make a nonelective contribution of 2% of compensation for each eligible employee.
The initial contribution may be submitted via mail or as an ACH (Automated Clearing House) contribution via the Plan Sponsor Web site; all subsequent contributions will be made via Plan Sponsor Web.
SIMPLE IRA plans require immediate 100% vesting on the total account balance.
No, there is no rule requiring employees to participate. However, if you select the Nonelective Contribution option, each eligible employee must establish a SIMPLE IRA account.
Yes, each participant can contribute up to $11,500 in 2009 ($10,500 in 2008) and $14,000 if employee is age 50 or older ($13,000 in 2008).
You must notify employees of their opportunity to participate in the plan and the type and amount of the employer contribution. Each eligible employee must receive the notification prior to a 60-day election period. The period during which the employee may make the election is a 60-day period that includes either the date the employee becomes eligible (which could also be the effective date of the plan) or the day before.
Each year you must notify all eligible employees of their right to enter into or modify their salary reduction agreements for the next year. This notice must be provided no later than November 1.
No. The IRS does not allow loans from a SIMPLE IRA.
Rules for distributions from SIMPLE IRAs are the same as the rules for IRAs. Distributions taken before the participant reaches age 59½ may be subject to a 10% tax penalty, unless an exception applies. However, withdrawals made within two years from when the employee (if under age 59½) began participation in a SIMPLE IRA may be subject to an increased penalty of 25%.
After two years of participation in a SIMPLE IRA, SIMPLE IRA money may be transferred to a Traditional IRA without penalty. (A transfer from one SIMPLE IRA to another SIMPLE IRA is not subject to a penalty.)
The employer must remit employee salary reduction contributions to the SIMPLE IRA as soon as the amounts can reasonably be segregated from employer assets but no later than the end of the 30-day period after the end of the month in which the employer normally would have paid the money to the employee. Employer contributions to a SIMPLE IRA may be made in periodic contributions or in a lump sum, as long as the contributions are deposited before the employer's tax filing deadline (including extensions).
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