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Self-Directed SIMPLE (Savings Incentive Match Plan for Employees)

The SIMPLE IRA is a plan for small businesses with 100 or fewer employees who have no other qualified plans. With a SIMPLE plan, contributions are tax-deductible, and earnings within the account are tax-free until withdrawn.

SIMPLE IRA Contribution Limits

A SIMPLE IRA allows:

  • Employee contributions in 2020 of up to $13,500 if you are under age 50, and a catch-up contribution of up to $16,500 if you are 50 or older.
  • Employee contributions in 2021 of up to $13,500 if you are under age 50, and a catch-up contribution of up to $16,500 if you are 50 or older.

Employers are generally required to match each employee’s salary reduction contributions, on a dollar-for-dollar basis, up to 3% of the employee’s compensation.

Deducting Contributions

You can deduct SIMPLE IRA contributions for the tax year within which the contributions were made.

Details about the Solo 401(k), SEP and SIMPLE IRA plans, contribution and potential deduction amounts, eligibility, and income requirements

SIMPLE IRA Pros and Cons

SIMPLE Eligibility

You can establish a SIMPLE IRA plan if you meet BOTH of the following requirements:

  • You meet the employee limit
  • You do not maintain another qualified plan, unless the other plan is for collective bargaining employees

Employee Limit

You can establish a SIMPLE IRA plan only if you had 100 or fewer employees who received $5,000 or more in compensation from you for the preceding year.

Under this rule, you must take into account all employees who were employed at any time during the calendar year, regardless of whether they’re eligible to participate.

The SIMPLE IRA plan generally must be the only retirement plan to which you make contributions, or to which benefits accrue, for service in any year beginning with the year in which the SIMPLE IRA plan becomes effective.

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