It's SIMPLE to Save for Retirement
Several years ago, I wrote an article about a 'new' retirement plan known as the SIMPLE plan or "Savings Incentive Match Plan for Employees".
The plan was developed to help owners of small businesses attract workers who desired a retirement vehicle from their employer.
These plans are limited to employers with 100 or less employees. They are inexpensive to administer and have none of the cumbersome testing rules of their larger cousins (403B, 401k, 457 plans).
The maximum contribution for an employEE for 2021 for a SIMPLE plan is $13,500. Participants over 50 years of age may make a "catch-up" contribution of an additional $3,000.
EmployER matching contributions for SIMPLE plans are required to match each employee's contribution by 3%. The employer may choose to make a matching contribution of 1% for no more than two of 5 years, according to the IRS (Notice 98-4). This rule was made to help small businesses who experienced a poor revenue year, or extenuating circumstances have flexibility with their budgeting.
Nonelective contributions to a SIMPLE plan is the process an employer can choose to make contributions of 2% to each eligible employee's compensation. When the employer makes this choice, it makes nonelective contributions regardless if the employee chooses to make salary deferrals.
The question for you as an employee is the critical decision to PARTICIPATE. Your saving for retirement is the easiest way to having the funds you will need in the future. Your employer's match, whatever form it takes, is simply icing on the cake and Free Money!
So what's the next step?
Visit with your employer or their Human Resource department representative. Ask what type of plan is offered. There are many different types of plans. Find out the details of your Employer's plan. Ask questions such as what the matching contribution amounts are, and what type of investments are available.
Consult with your spouse, or if you do not have one, figure out how much you may sensibly contribute to the plan. Maximize the amount you can contribute. This is a budget topic, perhaps your most important one!
We at EGP Wealth Management LLC wish to assist you in understanding the myriad of retirement savings vehicles, as well as, preparing you for the transition from work to a healthy, fulfilling retirement.
Liz Adams is Chief Compliance Officer and a Registered Principal for EGP Wealth Management LLC. She has 35 years experience in the financial planning industry. Liz is a former city council member for the City of Maumelle, and former chairperson of the Arkansas Independent Living Commission.