SIMPLE stands for “Savings Incentive Match Plan for Employees.” These are popular among small businesses with less than 100 employees because they provide many of the benefits of conventional retirement plans like 401(k)s, but are much simpler and less expensive to set up and operate.
Each eligible employee can contribute up to $12,500 of his or her compensation in 2015 and 2016 ($15,500 if age 50 or older). The employer is required to match 100% of each employee’s contribution, up to 3% of his or her salary.
For example, if an employee makes $100,000 and chooses to contribute $12,500 to her SIMPLE IRA, the company must deposit an additional $3,000 matching contribution into her SIMPLE IRA (3% of her compensation). If this same employee were to contribute only $2,000, the employer would be required to deposit an additional $2,000 on her behalf since she contributed less than 3% of her salary.
No employer contribution is required for employees who do not contribute to the plan themselves, unless the employer elects to make a 2% nonelective contribution on behalf of all employees.
Sounds simple, right? Okay, maybe this type of plan doesn’t quite live up to its name, but it is still much simpler than a 401(k)!
To learn more about SIMPLE IRAs, click here.