Estimating Employer Contributions for your SIMPLE IRA Plan PDF by Bradleystephens


									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
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%**
                                                                                $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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