Publication 590
taxmap/pubs/p590-019.htm#en_us_publink1000231097This 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. |
taxmap/pubs/p590-019.htm#en_us_publink1000231100A 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 plan. For more information, see
chapter 5. |
taxmap/pubs/p590-019.htm#en_us_publink1000231108You 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/p590-019.htm#en_us_publink1000231110Your 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.
Note.The self-employed health insurance deduction, subtracted from
Schedule SE, line 3, does not apply when figuring your net earnings from
self-employment.
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