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Steps to Build Plan
  Step 1 - Define goal
  Step 2 - Gather data
  Step 3 - Get educated
  Step 4 - Assess situation
  Step 5 - Develop plan
  Step 6 - Make changes
  Step 7 - Get help
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The SIMPLE-IRA, or Savings Incentive Match PLan for Employees-IRA, replaced the SARSEP-IRA for new plans established on or after January 1, 1997.

The SIMPLE-IRA is a tax-deferred retirement plan provided by sole proprietors or small businesses with fewer than 100 employees who do not maintain or contribute to any other retirement plan. Contributions are made by both the employee and the employer. In a SIMPLE-IRA, contributions and the investment earnings can grow tax-deferred until withdrawal (assumed to be retirement), at which time they are taxed as ordinary income.

Employee Contributions Eligible employees can elect to contribute up to 100% of compensation up to a maximum of $10,500 for the 2007 and 2008 plan years through salary reduction. (The amount elected by the employee may be expressed as a percentage of compensation or as a specific dollar amount.)

Additionally, participants age 50 and older in 2007 and 2008 may be able to make an additional annual $2,500 catch-up elective deferral contribution to their SIMPLE-IRA.

Employer Contributions Employers can choose from two different contribution methods and can even switch between these options each year, provided certain notification requirements are met:

  • Matching Option requires employer to match each participant's contributions dollar-for-dollar up to 3% of compensation but no more than $10,500 for the 2007 and 2008 plan years. Also allows the employer to reduce the employer's match to as little as 1% of each participant's compensation for any two years in a five-year period.
  • Non-Elective Contribution Option requires employer to contribute 2% of each eligible employee's compensation each year - up to a maximum of $4,500 for 2007 and $4,600 for the 2008 plan year regardless of whether the participant contributes or not (the maximum annual compensation on which contributions can be based is $225,000 for 2007 and $230,000 for 2008).
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