SIMPLE IRA (Savings Incentive Match Plan for Employees Individual Retirement Account) is a type of retirement savings plan designed for small businesses with 100 or fewer employees.
It allows both employees and employers to contribute to individual retirement accounts. Employees can elect to defer a portion of their salary to the SIMPLE IRA, while employers are required to make either matching contributions up to 3% of the employee’s compensation or a fixed contribution of 2% for all eligible employees.
The contributions to a SIMPLE IRA are made on a pre-tax basis, which means they reduce the taxable income of the employee for the year of contribution. Withdrawals from the account are taxed as ordinary income, and early withdrawals before age 59½ may incur penalties. This plan is particularly beneficial for small businesses seeking a straightforward retirement plan that encourages employee savings.
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