More on SIMPLE Plans
Most businesses will find the IRA version preferable to the 401(k) form of SIMPLE. Here’s how SIMPLE IRAs work. Eligible employees (including yourself) can elect to have a portion of their earnings withheld each pay period, limited to $11,500 in annual deferrals ($14,000 for those aged 50 or older). The employees then direct how the deferrals will be invested within their own SIMPLE IRAs. Amounts withheld for the SIMPLE IRA reduce the employee’s taxable income and grow tax-deferred.
The costs to set up and administer a SIMPLE IRA are minimal. However, as the employer, you’re required to make contributions into your employees’ SIMPLE IRAs on their behalf. You have the option of contributing either 2% of the wages of every eligible employee or making matching contributions up to 3% of the wages of those employees who participate in the plan.
Generally, the deadline for businesses to establish a SIMPLE plan for 2012 is October 1, 2012. To find out more about SIMPLE plans, give us a call.
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