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Day of Reckoning for SIMPLE Plans

Simplicity can be a beautiful thing. It is one of the main attractions of the aptly named SIMPLE retirement plan (short for Savings Incentive Match Plan for Employees). This is a relatively easy way for a small-business owner to establish a qualified plan for his or her employees. To qualify, the business cannot have had more than 100 employees who earned at least $5,000 of compensation during the preceding calendar year.

There are two basic types of SIMPLE plans. One is structured like an IRA (individual retirement account) and the other is comparable to a 401(k) plan. The SIMPLE-IRA is generally preferred for administrative ease.

Alert: A key deadline is approaching. Unlike most other qualified retirement plans, your business has until October 1, 2006, to set up a SIMPLE plan for 2006. The maximum amount that an employee may contribute is $10,000 (plus an additional $2,500 for someone age 50 or older).

 

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