SIMPLE IRA (Savings Incentive Match Plan for Employees) Estimating Employer Contributions for your SIMPLE IRA Plan. To help you estimate the costs associated with offering a SIMPLE IRA Plan to your company, we’ve designed the following worksheet. After you complete it, you’ll be able to estimate and compare the costs for the two employer contribution options. You’ll also be able to compare the standard 3% match vs. the 1% reduced match available in any two out of five years. Please keep in mind your actual contributions may change each year — depending on several variables, including the number of eligible employees, their compensation, and the number of employees who elect to make salary reduction contributions and the amount of their contributions. In addition, this worksheet does not reflect the effect of any federal, state or local taxes on employee salary reduction contributions. Step 1: This worksheet does not incorporate any Example Your Company cost associated with maintaining or setting up an IRA, which is generally $10-$25 per year. Maintenance fees are most often paid by the 1. How many employees do you have? 6 individual account holder. 2. Average % of salary you estimate they will defer 5% 3. Average yearly salary* per employee $30,000 4. Total number of eligible employees you expect will contribute to the plan 5 5. Multiply line 3 by line 4 $150,000 Step 2: Please note: Option 1: You contribute for employees who choose to participate. You may switch between option 1 and option 2 each 6. 3%** employer match year provided certain notification (Multiply line 5 by 3%) $4,500 OR requirements are met. 7. 1%*** employer match (Multiply line 5 by 1%) $1,500 Also note, the matching Option 2: You contribute for ALL of your employees, and/or the non-elective whether they choose to participate or not. portion of your contribution 8. Total yearly salary of all employees becomes a business expense (Multiply line 1 by line 3) $180,000 for tax purposes. 9. 2% contribution for ALL employees (Multiply line 8 by 2%) $3,600 Step 3: Employer contribution. Go Figure… 10. Contribution to your (employer) SIMPLE IRA (Not to exceed $10,500 annually) $10,500 + 11. Your annual salary* $80,000 - 12. If choosing OPTION 1, multiply your annual salary by 1%*** or 3%** OR $2,400 x 13. If choosing OPTION 2, multiply your annual salary by 2% 14. Total contribution to your account / (Add line 10 and either 12 or 13, depending on which option you’ve chosen) $12,900 Step 4: The real cost of a SIMPLE IRA may be less than you think. 15. Total employee contributions (Add line 6, 7 or 9 and line 12 or 13) $6,900 16. Business tax bracket 30% 17. Business tax savings (Multiply line 15 by line 16) $2,070 18. Net cost to business (Line 15 less line 17) $4,830 19. Less owner’s matching contribution (Line 12) $2,400 Net cost of contribution to employees after tax savings and owner’s contribution (Line 18 less line 19) $2,430 * Maximum compensation on which employer non-elective contributions can be based is currently $225,000 for 2007. ** Maximum annual employer contribution limit per participating employee is 3% of an employee’s compensation up to $10,500 per year, which is indexed for inflation. This worksheet assumes the average percentage of salary deferred by employees is 3% or more. *** Available in any two out of five years.
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