The Pros and Cons of a SIMPLE IRA
By CHM on Mar 14, 2008 in Financial Planning, Retirement, and Now! | 2 Comments
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A SIMPLE IRA is what I like to call a ‘fall between’ plan.
It has some of the characteristics of a SEP IRA and some of the characteristics of a 401(k); because of the SIMPLE IRA rules, it kind of ‘falls in between’ the two different plans.
When an employer has less than 100 employees and wants an alternative to a 401(k) plan that is simple and less expensive to install, a SIMPLE is worth looking into. Under a SIMPLE plan, both qualified employees and employers can make contributions to traditional IRA’s set up in their name(s).
If you’re a self employed individual you can also have a SIMPLE IRA, but as I told Blogger X (in my email to him) it probably makes more sense to have a SEP or Solo 401(k), because the amount you can contribute to a SIMPLE is capped at a far lower level ($10,500 for 2008) then either of the other plans mentioned.
If you are anticipating growth in your business and want to eventually put away as much as you can, then the SEP and Solo 401(k) allow you more flexibility then the SIMPLE.
