SIMPLE Solution?
If you own a business, you probably know that a company retirement plan can be an excellent tax shelter. But you also might have heard that retirement plans can be complex and costly. If you are still undecided about a retirement plan, or even if your company already has one, you might be interested in a SIMPLE plan (Savings Incentives Match Plan for Employees).
SIMPLE plans are generally available to self-employed individuals and to businesses that have 100 or fewer employees. The plans can be in the form of employee IRAs or a 401(k) plan.
Under a SIMPLE plan, an employee may contribute a percentage of compensation, with a maximum contribution of $6,500 for 2001. An employer is required to match employee contributions (up to 3% of compensation) or contribute 2% of all eligible employee's wages.
SIMPLE plans are considerably easier to administer than traditional company retirement plans, and that's their main attraction for business owners. For example, SIMPLE plans don't require discrimination or coverage testing, and employers aren't involved on the investment side.
If you want to adopt a SIMPLE for 2001, you'll have to act soon. The deadline to establish a plan for this year is October 1, 2001.
Before you make any decision about a SIMPLE plan, make sure that you thoroughly understand your potential obligations, as well as the benefits and drawbacks. This is especially important if you have an existing retirement plan and you are considering a SIMPLE plan as a replacement.
There is a summary of Retirement Plans For Small Businesses on our website. Every business is different, however and business owners have different objectives, so one type of plan doesn't fit everyone. Check with us first to be sure that the plan you select is the best one for you.
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© Copyright 2001 Raymond S. Kulzick. All rights reserved. 010901.
This publication provides business, financial planning, and/or tax information to our clients. All material is for general information only and should not be acted upon without seeking appropriate professional assistance.