Small Businesses Can Sign Up for New SIMPLE Retirement Plan

Date:  May 05, 1997
Editor: D'Lyn Ford  (505) 646-6528, dlford@nmsu.edu

LAS CRUCES -- A new retirement plan called a SIMPLE is joining the alphabet soup of 401(k)s, IRAs and Keough plans, thanks to changes in tax law.

The Savings Incentive Match Plan for Employees -- SIMPLE for short -- gives farmers, ranchers and small business owners a new retirement option, said Jim Libbin, farm management specialist with New Mexico State University's Cooperative Extension Service.

Essentially, a SIMPLE is a less complicated version of a 401(k) for businesses with fewer than 100 employees, he said. In a traditional 401(k), employees deposit a portion of their earnings in a tax-deferred account for retirement.

"Many farmers and ranchers have gotten used to the idea of having a 401(k)," Libbin said. "The biggest difference with a SIMPLE is that it involves matching contributions from both employees and employers. The 'M' in SIMPLE comes from matching."

With a 401(k), employees may contribute a maximum of $9,500 a year and have taxes deferred until the money is withdrawn. For a SIMPLE, the maximum tax-deferred contribution is $12,000 per year, with up to $6,000 each from the employee and employer.

Another distinctive feature is that the SIMPLE allows businesses to have different contribution rates for corporate officers and employees, Libbin said.

"A nice thing about the SIMPLE is that the IRS has created a standard form for reporting contributions and standard language for a SIMPLE," Libbin said. "So we're not shooting in the dark in terms of what we need to set up a program that qualifies under this particular retirement plan."

To find out more about starting a SIMPLE retirement program for your business, discuss the options with a tax advisor.