9.7.4 Savings Incentive Match Plan for Employees (SIMPLE)
To replace the SARSEP, the Savings Incentive Match Plan for Employees (SIMPLE) was created. Small businesses with no more than 100 employees who received at least $5,000 in compensation from the employer during the previous year are eligible to set up for a SIMPLE providing the employees with tax-favored retirement savings plans. The deferred amount per year ($11,500 in 2009 - but $14,000 for those age 50 and older*) - plus COLA increases - is matched by the employer dollar-for-dollar up to an amount equal to 3% of the employee's annual compensation or the employer can make nonelective contributions of 2% of compensation on behalf of each eligible employee. Only the first $245,000 (2009**) of the employee's compensation can be taken into account when determining the contribution limit.
Note: *$10,500 - but $13,000 for those age 50 and older in 2008
**$230,000 in 2008
Catch-up Contributions
Both SARSEP and SIMPLE plans allow employees 50+ years of age to make additional contributions (catch-up contributions) with a $5,500 limit on a SARSEP and a $2,500 limit on a SIMPLE (2009).*
*Note: Only the SARSEP increased from 2008. In 2008, catch-up contributions had a $5,000 limit on a SARSEP and a $2,500 limit on a SIMPLE.
SIMPLE plans can be structured as an IRA or as a 401(k).
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Section 9.7 ReviewThe Keogh plan was specifically designed for self-employed individuals. |
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The main difference between SEPs and IRAs is that you can contribute a much larger amount to an IRA within one year. |
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