Simple IRA an overview

by Manshu on November 16, 2006

in Articles

IRA or the Individual Retirement Account provides double benefits to the customer. In the first instance it provides Compound Interest and the additional benefit is that there is no tax on this income. This mode of saving is really good if you have the money and can afford to keep it in the account for a longer period. The benefit of compound interest, without the additional burden of tax on this amount, is a powerful incentive to contribute in the Individual Retirement Account or IRA as it is commonly known.

 

The IRA account is for everyone who looks forward to some relaxation and enjoyment. At being able to do the things during their twilight years which they could not do during their earning years; things like, going on a cruise, spending some romantic moments with your loved ones,  in a place which you long dreamed off, playing golf or buying gifts for your near and dear ones. IRA contributions definitely play an important part in helping you to fulfil your long cherished dreams.

 

Then there is the Simple IRA Plan which is for employers employing one hundred or less workers. Here, the employee contributes a percentage from each salary cheque and the employer matches the amount with the company’s contribution up to three percent or makes a fixed contribution of two percent to each employee plan. The contribution of every eligible employee is deducted from his/her payroll. The amount so deducted is then contributed to the Simple IRA plan of the employee including the employer’s contribution which is then placed with a financial institution. The financial institution can be chosen by the employee or the employer. The employer can also choose to maintain the Simple IRA investments of all the eligible employees in a single financial institution. The Simple IRA plan is also beneficial because it involves minimum paper work and saves administrative costs.

 

Therefore this is one plan that has. : a) Salary reduction facility (the contributions to Simple IRA are directly deducted from the salary)         b) Little or no administrative costs involved for maintaining the Plan. c) Can be started by any employer who does not presently maintain any IRA related accounts and has on his payroll less than 100 workers e) the facility where the employee can not only decide how and where to invest the money but also can transfer his/her Simple IRA plan if and when he/she leaves the present workplace and joins another organisation.

 

If you are an eligible employee and are about to contribute to any of the IRA plans, it helps to know some of the terms and what they mean to any IRA account holder. Most IRA plans have Annual Contribution Limits which simply means that there is a limit to your annual contribution to your IRA account. Then there are the Withdrawals or Distributions which relate to the amounts withdrawn from the account. These amounts generally consist of your additional contributions or earnings in the IRA account.  The Simple IRA account helps you to take that first step, which of course is a step in the right direction.

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