Employees of small businesses may be
able to contribute to a
SIMPLE (Savings Incentive Match Plan for Employees of Small Employers)
retirement plan. These plans were designed
to encourage more small companies to establish retirement
plans. As their acronym suggests, SIMPLEs are less complicated
to set up and administer than
401(k)s
or
403(b)s.
But to
qualify to offer a SIMPLE plan, a company must have 100 or
fewer employees who earn at least $5,000 each during the
year, and it must commit to contributing to the plan.
There are two types of SIMPLE plans
— a SIMPLE IRA and a SIMPLE 401(k). Both types have
the same contribution limits, with increased catch-up contributions
for people 50 or older.
In 2008, you can put $10,500 into a SIMPLE plan, or $13,000 if you're 50 or older. SIMPLE contribution limits increase at set increments each year based on the rate of inflation.
Employer contributions
If they offer a SIMPLE, employers must
contribute to the plan one of two ways. They can make a
fixed contribution of 2% of each eligible employee’s
salary to an account in that employee’s name. Or they
can match each employee’s contribution dollar-for-dollar
up to 3% of his or her earnings.
If your employer chooses the second
alternative, you must be participating in the plan to get
the advantage of the match.
