What is a Simple Retirement Plan

A simple retirement plan can provide great benefits for employers with a small business that has less than 100 employees that earned more than $5,000 in the past year.

What is a Simple Retirement plan?

A simple retirement plan gives small business employers an easy method to make contributions to their employees retirement fund. Employees can make salary reduction contributions. Employees can make contributions in any amount up to the legal limit. In 2009, the legal limit was $11,500. This amount is subject to cost of living adjustments.

Benefits of a Simple Retirement Plan

A simple retirement plan has low administrative and employers are not required to file annual financial reports. The financial institution handles most of the details of running and operating the retirement plan. Contributions to simple IRA account are tax-deductible, which makes this retirement plan very lucrative for employers. Employees receive a non-elective employer contribution equal to 2% of their salary whether or not they make their own contributions to the retirement fund. Employees that participate will receive up to a 3% match of their contribution from the employer.

Distributions

Contributions to a simple retirement plan can be withdrawn at any time. This is called a distribution of your retirement funds. An employees can receive their distribution in a lump sum or they can transfer their money to another retirement plan. Participants cannot take out a loan from their simple retirement plan.

Investing a Simple Retirement Plan

After the participants deposit their money in a simple retirement plan, they can choose where to invest their funds. Their IRA funds can be invested in stocks, bonds, mutual funds and other types of investments. Employers and their representatives should keep track of all investments to make sure they are handled in the best interest of the company and its employees.

All participants in a simple IRA plan must receive a summary description. A Summary Description is a explanation of the retirement plan that explains the participants rights and responsibilities under the plan. This summary is given to employees when they first join the retirement plan and annually after the first year. When an employer wants to terminate their simple retirement plan, they should contact the financial institution and cancel their contract with them.

Related posts

1. What Is a 401k Retirement Plan?
2. How Do I Take Advantage Of My Employer’s Retirement Plan?
3. Can I Make My Own Contribution To My Retirement Plan?
4. What Will My Employer Do To Help Me Plan For My Retirement?
5. Why Choose A Non-Qualified Retirement Plan?

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