An eligible employer may adopt a “Savings Incentive Match Plan for Employees – SIMPLE” IRA. The SIMPLE IRA must meet the requirements that apply to traditional IRAs. However, contributions to an employee’s SIMPLE IRA are limited to:
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employee contributions made under a salary reduction agreement; and
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employer contributions that are made as either matching contributions or non-elective contributions.
The IRS has issued two model forms that may be used by employers that want to establish a SIMPLE IRA for their employees. If the employer has established a SIMPLE plan, an employee must be eligible to participate in any calendar year if he or she received at least $5,000 of compensation from the employer during each of the two preceding calendar years, and is reasonably expected to receive at least $5,000 in compensation during the current calendar year.
A self-employed individual is treated as an employee and may participate in a SIMPLE plan if the minimum compensation requirement is met.
