IRA Rules
Individual Retirement Account Rules

IRA Rules And Information

 

Simple IRA Rules

Simple IRA plans are available to all small businesses and are usually adopted by companies with fewer than 100 employees. The employee determines what amount of their salary they want to contribute and it is done through a pre-tax payroll deduction. The account is an Individual Retirement Account and is owned by the individual employee.

If you have earned at least $5,000 in each of the past two calendar years and expect to earn at least that amount this year, then you are eligible to participate in all Simple IRA Plans. Not all Simple IRA plans have these qualifiers as most allow full time employees to participate immediately upon hiring. When your employer notifies you of your eligibility you usually have a 60 day timeframe to choose to participate.

Unless the employer offers immediate eligibility, the only effective enrollment date is January 1st. Employees may choose to stop contributions at any time during the year.


The reasons an employer would consider a Simple IRA are:

- They are easy to setup without all the cost and maintenance of conventional retirement plans.

- Can be established by simply using a Simple IRA prototype form

- There are generally no employer filing requirements.

- Unlike 401k plans a Simple IRA allows highly compensated employees to defer the maximum even if other employees do not.

- Employees can choose their own investments.


The Employer may NOT have another retirement plan.



Simple IRA Contribution Rules

The employer must contribute each year to each employees IRA account. Generally the employer will match 100% of the employees contribution up to 3% of their salary. If the employee does not contribute then the employer must contribute 2% of the salary for all eligible employees (up to $4,900). Since the employee contributions are made pre-tax and the employer contributions are tax deductible these contributions reduce current tax burdens but the funds will be considered taxable income at the time they are withdrawn.

It is extremely beneficial for employees to maximize their contribution in order to receive the most benefit from the employer matching. This will help your retirement fund grow faster as an additional 1% contribution will add up over time.


Simple IRA Contribution Limits 2010 & 2011

Each employee can decide how much they wish to contribute but this contribution is limited to 100% of your salary or $11,500 for both 2010 and 2011.

Catch Up Provision: If you are over age 50, you may contribute an additional $2,500 per year to your Simple IRA and may be eligible for up to a $14,000 match.


Simple IRA Withdrawal Rules

Since any contributions to a Simple IRA are 100% vested immediately, all funds are available to withdraw at any time.  If you withdraw funds within the first two years however, there may be a 25% IRS penalty in addition to ordinary income taxes if you withdraw within the first 2 years.  The Simple IRA is also subject to the same rules as other IRA accounts which assign a 10% penalty to withdrawals taken before age 59 1/2.

 


Simple IRA Rules
Simple IRA Eligibility Rules
Simple IRA Contribution Rules
Simple IRA Contribution Limits
Simple IRA Withdrawal Rules


Health Savings Account Rules