SIMPLE IRA
Savings Incentive Match Plan for Employees — a retirement plan for small businesses with 100 or fewer employees.
Example
“The SIMPLE IRA allowed her small business to offer retirement benefits without the complexity of a 401k.”
Memory Tip
SIMPLE — designed for small businesses. Easier and cheaper than a 401k.
Why It Matters
A SIMPLE IRA allows small business owners and their employees to save for retirement with tax advantages and employer matching contributions. Understanding this option is important because it provides an accessible retirement savings vehicle for workers at smaller companies who might not have access to traditional 401(k) plans.
Common Misconception
Many people mistakenly believe that a SIMPLE IRA offers the same contribution limits as a regular IRA or 401(k) plan. In reality, while SIMPLE IRAs do allow higher contributions than traditional IRAs, they have lower limits than 401(k) plans, making them better suited for smaller organizations.
In Practice
A small marketing firm with 45 employees sets up a SIMPLE IRA where employees can contribute up to 3 percent of their salary. If an employee earns 50,000 dollars annually and contributes 3 percent, the employer must match that 1,500 dollar contribution, providing an immediate 50 percent return on the employee's investment.
Etymology
From the Small Business Job Protection Act of 1996 — simplified retirement for small employers.
Common Misspellings
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