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SIMPLE IRA Definition

A SIMPLE IRA is a type of employer provided retirement plan in the United States. Specifically, it is a type of Individual Retirement Account that is set up to be an employer provided plan. It is a qualified plan like more well known plans such as the 401(k) (profit sharing plans) and 403(b) (Tax Sheltered Annuity plans), but offers simpler and less costly administration rules.

Additional meaning of SIMPLE IRA:

Like a 401(k) plan, the SIMPLE IRA is funded by a pre-tax salary reduction. Contribution limits for SIMPLE plans are lower than for most other types of employer provided retirement plans, $10,000 for 2006 as compared to $15,000 for convention defined contribution plans (Section 402(g) limit) like 401(k), 401(a) and 403(b) plans. For the non profit 501(c)(3) employer, there is no advantage in establishing a simple plan over a 403(b) plan since the 403(b) does not require any more expensive administration. In addition with the SEP IRA which is even more simple than the SIMPLE, some retirement plan consultants question choosing the SIMPLE over the SEP.

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