This chapter is for employees who need information about savings incentive match plans for employees (SIMPLE plans). It explains what a SIMPLE plan is, contributions to a SIMPLE plan, and distributions from a SIMPLE plan.
Under a SIMPLE plan, SIMPLE retirement accounts for participating employees can be set up either as:
- Part of a 401(k) plan, or
- A plan using IRAs (SIMPLE IRA).
This chapter only discusses the SIMPLE plan rules that relate to SIMPLE IRAs. See Publication 560 for information on any special rules for SIMPLE plans that do not use IRAs.
If your employer maintains a SIMPLE plan, you must be notified, in writing, that you can choose the financial institution that will serve as trustee for your SIMPLE IRA and that you can roll over or transfer your SIMPLE IRA to another financial institution. See Rollovers and Transfers Exception
, later under When Can You Withdraw or Use Assets.
A SIMPLE plan is a tax-favored retirement plan that certain small employers (including self-employed individuals) can set up for the benefit of their employees. See Publication 560 for information on the requirements employers must satisfy to set up a SIMPLE plan.
A SIMPLE plan is a written agreement (salary reduction agreement) between you and your employer that allows you, if you are an eligible employee (including a self-employed individual), to choose to:
- Reduce your compensation (salary) by a certain percentage each pay period, and
- Have your employer contribute the salary reductions to a SIMPLE IRA on your behalf. These contributions are called salary reduction contributions.
In addition to salary reduction contributions, your employer must make either matching contributions or nonelective contributions. See How Are Contributions Made, later.
You may be able to claim a credit for contributions to your SIMPLE. For more information, see chapter 5
You must be allowed to participate in your employer's SIMPLE plan if you:
- Received at least $5,000 in compensation from your employer during any 2 years prior to the current year, and
- Are reasonably expected to receive at least $5,000 in compensation during the calendar year for which contributions are made.
For SIMPLE plan purposes, the term employee includes a self-employed individual who received earned income.taxmap/pubs/p590-020.htm#en_us_publink1000231110
Your employer can exclude the following employees from participating in the SIMPLE plan.
- Employees whose retirement benefits are covered by a collective bargaining agreement (union contract).
- Employees who are nonresident aliens and received no earned income from sources within the United States.
- Employees who would not have been eligible employees if an acquisition, disposition, or similar transaction had not occurred during the year.
For purposes of the SIMPLE plan rules, your compensation for a year generally includes the following amounts.
- Wages, tips, and other pay from your employer that is subject to income tax withholding.
- Deferred amounts elected under any 401(k) plans, 403(b) plans, government (section 457) plans, SEP plans, and SIMPLE plans.
For purposes of the SIMPLE plan rules, if you are self-employed, your compensation for a year is your net earnings from self-employment (Schedule SE (Form 1040), Section A, line 4, or Section B, line 6) before subtracting any contributions made to a SIMPLE IRA on your behalf.
For these purposes, net earnings from self-employment include services performed while claiming exemption from self-employment tax as a member of a group conscientiously opposed to social security benefits.