What Do You Understand By Simple Retirement Plan?
The simple retirement plan is a saving plan that favors both the employer and employee. The employer is benefited by the fact that such provision would retain the best workers and therefore the business would profit from experienced staff. On the other hand, the employees too would benefit because they would be offered provisions for a retirement plan which offers initial tax deductions on savings until the sum is withdrawn.
The Provisions Of The Simple Retirement Plan
The simple retirement plan is in force as dictated by the Small Business Jobs Protection Act of 1996. Under this Act if you are employing up to 100 employees earning not more than US $5000 during the previous financial year, and they would not be part of any other retirement plan, you would be able to open for them either an IRA and a 401(K) plan.
These choices could be offered to the employees who could choose according to their personal choice. Under the simple retirement plan the employees could contribute up to US $6000 annually where the employer (you) would need to match 100% their contribution which should not exceed three percent of the pay or be less than one percent. Alternatively, the employer could pay a standard two percent without the obligation of the employee to contribute anything. Employees can choose to opt out anytime during the year.
When it comes to the distributions of the simple retirement plan, these are subject to IRA rules and regulations and they are counted as income when they are cashed in. In case you want to save in tax, you could have tax rollover from one SIMPLE account to another SIMPLE account or directly to an IRA. Early withdrawals are not encouraged and as such these attract about 10-25% penalty when you do so.
The Benefits Of The Simple Retirement Plan
Saving for your senior years is always great because it insures a safe and dignified life ahead of you. This is the number one benefit from this plan. Then there is the fact that you could defer taxes on these savings until you withdraw the saved amount.
Lastly, there is the benefit that you (as the employer) would benefit from motivating your employees to continue working with you and thus retaining your best hands for your business. In this manner, you get the best of both the worlds - you have happy and loyal workers and you save in tax deductions as well.
