SIMPLE IRA

A SIMPLE IRA is a retirement plan that may be established by employers, including self-employed individuals, for the benefit of their employees. The acronym stands for "Savings Incentive Match Plan for Employees." And IRA is, of course, "Individual Retirement Account." The SIMPLE IRA allows eligible employees to contribute part of their pretax compensation to the plan.

For a matching contribution, the employer's contribution may match the employee's elective-deferral contribution dollar for dollar, up to a maximum of 3% of the employee's compensation. Like other employer plans, the SIMPLE IRA allows employers a tax deduction for contributions they make to the SIMPLE IRA plan. Contributions to a SIMPLE IRA are not taxed, but distributions from a SIMPLE IRA are.