Rules of Simple IRA Your Business Needs to Know
A Savings Incentive Match Plan for Employees plan, better known as a SIMPLE plan, is an IRA-based retirement plan available to employers with fewer than 100 employees. Under a SIMPLE IRA plan, an employee can contribute a portion of his pay to his SIMPLE IRA account. An employee can make a maximum contribution of $9,000, ($10,500 if age 50 and over), to his SIMPLE IRA account for 2004. You, the employer, are required to make a contribution for every worker who receives $5,000 or more in compensation. You can match up to 3% of the salary for the employees who contribute to their SIMPLE IRA account.
You only have to match for those employees who contribute to the plan. In any 2 years out of a 5 year period, after notification to the employees, you may elect a lower matching contribution percentage but not less than 1% of salary. Your business also has the option to select a "non-elective" mandatory company match of 2% of annual salary for every employee. Under the "non-elective" contribution formula, even if an eligible employee doesn't contribute to his SIMPLE IRA, you must still contribute to his account 2% of his salary. Advantages of the SIMPLE IRA
- Less expensive than a 401(k)
- A special tax penalty of 25% unique to the SIMPLE IRA for withdrawals made within the first two years of opening a SIMPLE plan.
(Congress is considering eliminating this tax).
- A SIMPLE IRA is much less flexible than a 401(k) plan.
- Employer must make contributions for all eligible employees.
- No contributions can be made to other qualified retirement plans.
- All contributions are immediately vested, meaning all contributions belong right away to the employee.
- A SIMPLE IRA plan can only be terminated prospectively, beginning no earlier than the next calendar year. Contributions must continue until the plan is terminated.
- A SIMPLE IRA must be set up at least 60 days prior to year end. Thus, October 1, is the last day to set up a new SIMPLE IRA for the calendar year.
- No loans allowed.
Roth IRA Conversion
A Roth IRA is an individual retirement account wherein a person can save his or her tax-deducted income for retirement and get tax-free earnings in returns. It is different from the traditional IRA account, in that the earnings are tax-exempt, but the earnings may or may not be tax-free.
There are two ways to contribute funds to the Roth IRA account. One is by simply depositing compensation income, which can be the income obtained in the form of wages, earnings from a self-employed work, or even alimony. The other way is to convert funds from a traditional IRA to the Roth IRA.
This can be done by taking funds from the traditional IRA account and depositing them into the Roth IRA account within 60 days of receiving the funds. Therefore, a Roth IRA Conversion account is a retirement account created when a person converts his or her regular IRA account into a Roth IRA account. To convert a regular IRA account into a Roth IRA account, you have to meet certain eligibility...
Roth IRA Conversion
Ira > Roth IRA Conversion
Early Distributions From Retirement Plans
An early distribution from an Individual Retirement Arrangement (IRA) or a qualified retirement plan need not be a "taxing" experience. Fortunately, there are exceptions to early distributions. Any payment that you receive from your IRA or qualified retirement plan before you reach age 59? is normally called an "early" or "premature" distribution. As such, these funds are subject to an additional 10 percent tax. But there are a number of exceptions to the age 59? rule that you should investigate if you make such a withdrawal.
Some of these exceptions apply only to IRAs, some only to qualified retirement plans, and some to both. IRS Publications 575, Pensions and Annuities, and 590, Individual Retirement Arrangements (IRAs), have details.In addition to the 10 percent tax on early distributions, you will add to your regular taxable income any distributions attributable to "elective deferrals" that you contributed from your pay, your employer's contribution and any income earned...
Early Distributions From Retirement Plans
Ira > Early Distributions From Retirement Plans
New Tax Bill Creates the Greatest Tax Break of Your Life
Pittsburgh, PA (ContentDesk) May 18, 2006 -- James Lange, CPA/Attorney, says
taxpayers with an AGI greater than $100,000 need to know about the New Open Season for Roth IRA conversions that is provided for in the new tax law.Respected Roth IRA expert Lange says: The new tax law is HUGE for taxpayers making more than $100,000 who have an IRA. The long term benefit to your family of making a Roth IRA conversion can be estimated by multiplying the current value of your IRA by 15. Wednesday, May 17, 2006, President Bush signed a major tax bill that
presents wealthy Americans with an outstanding lifetime opportunity. The Tax Increase Prevention and Reconciliation Act (TIPRA) will lift the $100,000 AGI ceiling on Roth IRA conversions for tax years after 2009. In 2010, wealthy Americans will, for the first time, qualify for
Roth IRA conversions. Lets look at a scenario:
a taxpayer makes more than $100,000 and he has a $500,000 IRA. If he converts his IRA...
Ira > New Tax Bill Creates the Greatest Tax Break of Your Life
For Entrepreneurs A SIMPLE Plan May Be Best
Q: I own a small decorating business and I'll be the first to admit that I don't know anything about taxes or retirement plans. I'd like to set up a 401(k) or an IRA or some other kind of retirement plan for me and my three employees. What are the various retirement plan options available for a small business owner and in your opinion, which would work best for me?
-- Wanda S.
A: Wanda, I appreciate your confidence in my humble opinion, but asking me for financial advice is like asking Donald Trump for a recommendation on hair care products. I can tell you what works best for me and my business, but you'll need to do your homework and seek professional advice to figure out what would work best for you. As a side note, I hear that Donald Trump is coming out with his own line of hair care product soon to be called "Big Head." The formula is 1% mousse, 1% liquid nails, and 98% hot air.
It should be a big seller among the high brow, comb-over crowd.
Ira > For Entrepreneurs A SIMPLE Plan May Be Best
Rules of Simple IRA Your Business Needs to Know
A Savings Incentive Match Plan for Employees plan, better known as a SIMPLE plan, is an IRA-based retirement plan available to employers with fewer than 100 employees. Under a SIMPLE IRA plan, an employee can contribute a portion of his pay to his SIMPLE IRA account. An employee can make a maximum contribution of $9,000, ($10,500 if age 50 and over), to his SIMPLE IRA account for 2004. You, the employer, are required to make a contribution for every worker who receives $5,000 or more in compensation. You can match up to 3% of the salary for the employees who contribute to their SIMPLE IRA account.
You only have to match for those employees who contribute to the plan. In any 2 years out of a 5 year period, after notification to the employees, you may elect a lower matching contribution percentage but not less than 1% of salary. Your business also has the option to select a "non-elective" mandatory company match of 2% of annual salary for every employee. Under the "non-elective...
Rules of Simple IRA Your Business Needs to Know
Ira > Rules of Simple IRA Your Business Needs to Know