A Savings Incentive Match Plan for Employees (or a SIMPLE IRA) is a retirement account that gives employers an easy way to make contributions toward their own retirement, as well as toward the retirement of employees. A SIMPLE IRA is designed for small businesses with 100 employees or less, as well as self-employed individuals. If you are self-employed, you are considered both “employer” and “employee” under the terms of the plan.
A SIMPLE IRA is a salary-reduction plan. Employees can choose to make contributions up to the allowable limit and the employer must contribute to the plan. The employer can choose to match the employee’s contribution up to 3% of compensation (dollar for dollar), or choose to contribute 2% of compensation across the board with no matching.
A SIMPLE IRA is a tax-deferred plan, meaning contributions are made from pre-tax dollars. The amount is excluded from your gross income, and the funds are taxed when they are withdrawn upon retirement.