A Savings Investment Match Plan for Employees can be a low risk investment option depending on the types of products you put in it. A SIMPLE IRA plan offers many attractive benefits for employers and employees alike. Designed for small businesses, it allows companies to offer workers a retirement plan without incurring costly setup fees. A SIMPLE IRA can be good for employees, too, providing options not available in other types of retirement plans.
As with any investment, it's impossible to completely eliminate risk. The SIMPLE IRA comes in two forms: self-directed and vendor-supplied. In a self-directed plan, the employee picks the investments, which can include individual stocks and bonds. A vendor-supplied product is a package of investments selected by the mutual fund or insurance company that administers the IRA. The risk level of the SIMPLE IRA depends on the risk level of the investments within it. For example, buying a certificate of deposit within a SIMPLE IRA would be a very safe, insured investment; individual penny stocks are much riskier.
SIMPLE IRA Generally
Just like the name implies, SIMPLE IRAs are pretty simple. They're available to businesses with 100 or fewer employees that offer no other types of retirement plans. Any employee who earns more than $5,000 per year counts toward the 100-employee total, so employers must factor in part-time workers as well. The SIMPLE IRA can be used by both for-profit companies and nonprofits like charities and government employers. Once in place, employees choose to contribute up to a certain amount of their salary. The employer kicks in a matching amount.
All contributions are 100% vested, which means employees don't have to wait to access their money. This differs from other types of retirement plans like 401(k)s, where employer matching amounts might take a few years to vest. A SIMPLE IRA also gives you the option to be master of your own destiny, allowing you to pick and choose the types of investment products you want included in your plan. As of 2013, employees can contribute up to $12,000 per year.
When it comes to generosity, the SIMPLE IRA doesn't give employers much choice. An employer that decides to offer workers this type of IRA is required to match their contributions up to 3 percent. If an employee chooses not to participate in the plan, the employer is still required to kick in some cash, but only up to 2 percent of the employee's annual salary. The employer can deduct all matching contributions on its income tax return each year.
A.M. Hill has been a licensed attorney since 2004. Her practice areas include family law and divorce, probate and estate planning and bankruptcy. Hill holds a Juris Doctor from the Cleveland-Marshall College of Law.