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Are SIMPLE IRAs tax deductible?
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| Also available are "SIMPLE" IRA accounts, which are salary
reduction retirement plans intended for small businesses. As many as 36 million people
working for companies with 100 or fewer employees could benefit from the
small business
pension plan, called SIMPLE, for Savings Incentive Match Plan for Employees. Employees can
make tax deductible contributions of up to $11,500 ($14,000
for participants age 50 or older) per tax year. Employers match the contribution. The money isn't taxed
until withdrawn. A SIMPLE plan can be maintained by an employer that meets the two (2)
following qualifications:
 | in the previous calendar
year had no more than 100 employees who earned compensation of
$5,000 or more; and |
| does not maintain any other retirement plan. |
To be eligible to contribute to a SIMPLE IRA an employee must reasonably be expected to
earn $5,000 or more; provided at least $5,000 of earnings was received by the employee in any
two prior tax years. Employees make elective salary reduction contributions of up to
$11,500 and employers make either a matching contribution or a fixed non-elective
contribution. All contributions are fully vested and non-forfeitable when made. Employee
contributions are subject to FICA tax withholding.
If an employer chooses matching contributions the employee's contribution is matched by
the employer up to 3% of the employee's compensation. If an employer chooses the
non-elective contribution the employer must contribute 2% of the employee's compensation.
Simple IRA Distributions
Distributions from SIMPLE IRAs are subject to the regular distribution
tax rules. See
IRAs. However, during the first two (2) years the early distribution
penalty tax is 25%.
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Related tax
information about SIMPLE IRAs |
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IRAs
Roth IRAs
SEP IRAs
Keogh Plans
Are IRA rollovers taxable on my tax return?
Adjustments to Income
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IRS publications about
SIMPLE IRAs:
For additional information, refer to Tax Topic
451, IRAs, or IRS Publication
590, Individual Retirement Arrangements (IRAs). Also see
IRS Publication 17, Your Federal
Income Tax. |
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Ask Julian Block your IRS and tax questions! |
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If you can't find the answer to your IRS or tax question in our
web you can call former IRS Special Agent and one of the country's foremost tax attorneys, nationally syndicated columnist ("The Tax
Adviser") Julian Block. Julian is also the tax Editor of Mutual Funds Magazine, America's premier investment magazine. To
call Julian for a tax consultation click
here. |
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