SIMPLE IRA Rules for 2014

What you need to know.

May 24, 2014 at 12:00PM

As a self-employed individual, you're able to sock money away for your financial future by funding a small-business owner retirement plan. One viable yet often overlooked option is the SIMPLE IRA. Here are some of the SIMPLE IRA rules, advantages, and considerations.

SIMPLE IRAs are easy-to-administer, inexpensive retirement plans for self-employed individuals and businesses with 100 or fewer employees. SIMPLE IRAs offers tax-deductible contributions, tax-deferred earnings, and a broad range of investment options. The investments available at the institution where the SIMPLE IRA is located will determine what kinds of investment choices are available to the employee.

Any type of business, including sole proprietors, partnerships, or corporations, can set up a SIMPLE IRA. One advantage of the SIMPLE IRA is that it's a salary deferral plan with both employee and employer contributions. Employees decide how much they want to contribute and can change their contribution levels during the plan's election period each year. You as the employer must also make contributions.

One key benefit of the SIMPLE IRA is that it can potentially save your business a lot of money in taxes every year. You also may be eligible for a tax credit for each of the first three years for the cost of starting a SIMPLE IRA plan. Existing businesses have until Oct. 1 to open a SIMPLE IRA for 2014.

Contribution rules
SIMPLE contribution limits are generous. In fact, the plan allows employees to make pre-tax salary deferral contributions up to $12,000 in 2014, or $14,500 if age 50 or older. As the employer, you must either match salary deferrals dollar-for-dollar up to 3% of a participant's compensation or contribute 2% of each eligible employee's compensation. The amount of employee compensation used in determining contributions is maxed out at $260,000 for 2014. Contributions to SIMPLE IRAs are always 100% vested, or owned, by the employee.  

Eligibility rules
All employees who earned at least $5,000 income in any two previous years and are expected to receive $5,000 compensation in the current year are eligible to participate. Employers must include part-time employees in SIMPLE IRAs but may be able to exclude union employees.

Withdrawal and distribution rules 
SIMPLE IRA contributions and earnings can be withdrawn at any time. However, a withdrawal is taxable in the year received. If a participant makes a withdrawal before age 59-1/2, a 10% early-withdrawal penalty generally also applies. If this withdrawal occurs within the first two years of participation, the 10% penalty is increased to 25%.

SIMPLE contributions and earnings must eventually be distributed. Beginning at age 70-1/2, required minimum distributions must be taken annually, as with traditional IRAs. Loans from SIMPLE IRAs are not allowed.

A simple way to start saving today
If this retirement plan makes sense for your business, be sure to carefully review the SIMPLE IRA rules before getting started. You can find more information about SIMPLE IRAs directly from the IRS.

How to get even more money during retirement
Social Security plays a key role in your financial security, but it's not the only way to boost your retirement income. In our brand-new free report, our retirement experts give their insight on a simple strategy to take advantage of a little-known IRS rule that can help ensure a more comfortable retirement for you and your family. Click here to get your copy today.

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4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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