Previous Page: Publication 590 - Individual Retirement Arrangements (IRAs) - Must You Withdraw or Use Assets? Next Page: Publication 590 - Individual Retirement Arrangements (IRAs) - How Are Contributions Made? Use   to find additional occurrences of topic items.

taxmap/pubs/p590-020.htm#TXMP7805a420 Chapter 3 Savings Incentive Match Plans for Employees (SIMPLE)(p69)

Savings Incentive Match Plans for Employees (SIMPLE)

taxmap/pubs/p590-020.htm#TXMP102001ef What's New for 2007(p69)

taxmap/pubs/p590-020.htm#TXMP27dc9837
Increase in limit on salary reduction contributions under a SIMPLE.(p69)

For 2007, salary reduction contributions (excluding catch-up contributions) that your employer could make on your behalf under a SIMPLE plan increased to $10,500.

For more information about salary reduction contributions, see How Much Can Be Contributed on Your Behalf? in this chapter.

taxmap/pubs/p590-020.htm#TXMP07ad03ae
Introduction

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.

taxmap/pubs/p590-020.htm#TXMP6cd1b559 What Is a SIMPLE Plan?(p69)

Savings Incentive Match Plan for Employees

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.

All contributions under a SIMPLE IRA plan must be made to SIMPLE IRAs, not to any other type of IRA. The SIMPLE IRA can be an individual retirement account or an individual retirement annuity, described in chapter 1. Contributions are made on behalf of eligible employees. (See Eligible Employees, later.) Contributions are also subject to various limits. (See How Much Can Be Contributed on Your Behalf, later.)

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.

taxmap/pubs/p590-020.htm#TXMP33036de1 Eligible Employees(p70)

Eligible Employees

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.

taxmap/pubs/p590-020.htm#TXMP64ab2c21 Self-employed individual.(p70)

For SIMPLE plan purposes, the term employee includes a self-employed individual who received earned income.

taxmap/pubs/p590-020.htm#TXMP0530ea78 Excludable employees.(p70)

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.

taxmap/pubs/p590-020.htm#TXMP7588f774 Compensation.(p70)

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.

taxmap/pubs/p590-020.htm#TXMP258733eb Self-employed individual compensation.(p70)

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.

Previous Page:  Publication 590 - Individual Retirement Arrangements (IRAs) - Must You Withdraw or Use Assets? Next Page:  Publication 590 - Individual Retirement Arrangements (IRAs) - How Are Contributions Made? Use   to find additional occurrences of topic items.