A Savings Incentive Match Plan for Employees plan, better known 
as a SIMPLE plan, is an IRA-based retirement plan available to 
employers with fewer than 100 employees.

Under a SIMPLE IRA plan, an employee can contribute a portion 
of his pay to his SIMPLE IRA account.  An employee can make a 
maximum contribution of $9,000, ($10,500 if age 50 and over), 
to his SIMPLE IRA account for 2004.  You, the employer, are 
required to make a contribution for every worker who receives 
$5,000 or more in compensation.

You can match up to 3% of the salary for the employees who 
contribute to their SIMPLE IRA account.  You only have to match 
for those employees who contribute to the plan.  In any 2 years 
out of a 5 year period, after notification to the employees, you 
may elect a lower matching contribution percentage but not less 
than 1% of salary.

Your business also has the option to select a “non-elective” 
mandatory company match of 2% of annual salary for every 
employee.  Under the “non-elective” contribution formula, even 
if an eligible employee doesn’t contribute to his SIMPLE IRA, 
you must still contribute to his account 2% of his salary.


Advantages of the SIMPLE IRA

 * Less expensive than a 401(k)


Disadvantages of the SIMPLE IRA

 * A special tax penalty of 25% unique to the SIMPLE IRA for 
   withdrawals made within the first two years of opening a 
   SIMPLE plan. (Congress is considering eliminating this tax).

 * A SIMPLE IRA is much less flexible than a 401(k) plan. 

 * Employer must make contributions for all eligible employees.

 * No contributions can be made to other qualified retirement 
   plans.

 * All contributions are immediately vested, meaning all 
   contributions belong right away to the employee.

 * A SIMPLE IRA plan can only be terminated prospectively, 
   beginning no earlier than the next calendar year.  
   Contributions must continue until the plan is terminated.

 * A SIMPLE IRA must be set up at least 60 days prior to year 
   end. Thus, October 1, is the last day to set up a new SIMPLE 
   IRA for the calendar year.

 * No loans allowed.


While the SIMPLE IRA make senses under certain circumstances, 
this plan comes with a lot of strings attached.  If your 
business has no employees and you do not expect to hire 
employees in the near future, consider using a Solo 401(k) 
with a loan feature instead of a SIMPLE IRA.  And, if you have 
more than 20 employees, look at setting up a regular 401(k) as 
an alternative.

To terminate a SIMPLE IRA plan, notify the financial institution 
that you chose to handle the SIMPLE IRA plan that you will not 
be making contributions for the next calendar year and that you 
want to terminate the contract or agreement with it.  You must 
also notify your employees that the SIMPLE IRA plan will be 
discontinued. 

Daniel Lamaute, CEO of Lamaute Capital, Inc. (www.InvestSafe.com)
specializes in setting up retirement plans.  You may visit 
http://www.investsafe.com to access a free calculator that will 
help you estimate what your maximum contribution might be under 
different plans.