SIMPLE stands for Savings Incentive Match Plan for Employees.

What is the SIMPLE IRA plan?

A SIMPLE IRA plan is a type of employer-sponsored retirement plan. Like the SEP plan, it features an IRA-type trust very much like that of a regular IRA. Features include:

• Employees may defer pre-tax compensation into the plan,
• Like a 401(k), employers match employee deferrals or may choose to make a contribution to all employees who are eligible to participate in the plan,
• A SIMPLE IRA doesn't require complicated contribution testing or Form 5500 plan reporting, and top-heavy plan rules do not apply,
• All contributions — employee deferrable and employer contributions — are deductible by the employer.
• All contributions — employee deferrals and employer contributions — are fully vested.

What are the limitations?

• Simple plans must be established by October 1, and thereafter must operate on a calendar year.
• An employer may not maintain any other qualified retirement plans under which employees currently receive contributions or accrue benefits,
• An employer may have no more than 100 employees for the preceding calendar year.

How much can employees contribute?

Employees may contribute up to $7,000 (indexed for 2002) per year. Employees can stop their deferrals at any time during the year. Here is a table of contribution limits effective for the 2002 tax year and beyond:

Year		Contribution Limit
2002		$7,000
2003		$8,000
2004		$9,000
2005 and beyond		$10,000 plus potential COLA increases in $500 increments beginning in 2006.

What do employers contribute?

Employers must follow one of these formulas:

• Match employee deferrals dollar-to-dollar up to three percent of the employee's compensation, or:
• Make a contribution of two percent of compensation to all eligible employees who have earned at least $5,000 with the employer for the year (even those who choose not to defer),
• Match deferrals up to a lower percentage of compensation (not lower than one percent) but only for two of any five years at the lower matching rate.

How are SIMPLE IRA contributions made?

Contributions are made to a SIMPLE IRA in the name of each employee. The SIMPLE IRA may be opened with any financial organization or limited to one location depending on the employer.


Can SIMPLE IRA assets be distributed or moved?

SIMPLE-IRA assets can be rolled over or transferred to an employee's Traditional IRA tax-free and without restriction beginning two years after an employee became a participant in the SIMPLE-IRA.

Rollovers from one SIMPLE-IRA to another are not subject to the two-year restriction. Distributions are taxed like a regular IRA, except that a 25% early withdrawal penalty generally applies to distributions taken prior to completion of two years participation in the plan and before the age of 59 ½.


How can I learn more about SIMPLE IRAs?

To establish a SIMPLE-IRA Plan or learn more about setting one up for your employees:
or visit the Academy Bank location nearest you today.