A SIMPLE IRA, or Savings Incentive Match Plan for Employees IRA, is a type of retirement savings plan that is designed for small businesses with fewer than 100 employees. SIMPLE IRAs are easy to set up and administer, and they offer employees a way to save for retirement with tax advantages.
With a SIMPLE IRA, employees can make pre-tax contributions from their salary to their retirement account, up to a certain annual limit (in 2021, the limit is $13,500). Employers are required to match employee contributions up to a certain percentage (either 2% of each employee’s compensation or a dollar-for-dollar match up to 3% of each employee’s compensation).
One advantage of a SIMPLE IRA is that it provides a tax-deferred retirement savings option for employees, while also offering tax advantages for the employer. SIMPLE IRA contributions are tax-deductible for the employer, and the contributions and earnings grow tax-deferred until they are withdrawn in retirement.
Like other types of retirement accounts, there are rules and restrictions that govern SIMPLE IRAs, such as limits on contributions, eligibility requirements, and rules for withdrawals. However, SIMPLE IRAs are generally considered to be a cost-effective and easy-to-manage option for small businesses that want to offer retirement benefits to their employees.
