Chapter 23
SIMPLE IRA
LEARNING OBJECTIVES:
A. Have a basic understanding of the SIMPLE IRA
REVIEW:
This chapter briefly covers the SIMPLE (Savings Incentive Match Plans for
Employees) IRA. Advantages and disadvantages are discussed following a
section on when an employer might want to use a SIMPLE plan. Tax implications
are covered next, followed by information on plan installation and ERISA
requirements. A question and answer section follows a reference to IRS
Publications 334 and 535 for more information.
CHAPTER OUTLINE:
A.
B.
C.
D.
E.
F.
G.
H.
I.
J.
What Is It?
When Is It Indicated?
Advantages
Disadvantages
Tax Implications
How To Install A Plan
ERISA Requirements
Where Can I Find Out More About It?
Questions And Answers
Chapter Endnotes
FEATURED TOPICS:
SIMPLE IRA
1
Chapter 23
CFP® CERTIFICATION EXAMINATION TOPIC:
Topic 63: Other tax-advantaged retirement plans
A. Types and basic provisions
4) SIMPLE
COMPETENCY:
Upon completion of this chapter, the student should be able to:
1. Have a basic understanding of the SIMPLE IRA
KEY WORDS:
Savings Incentive Match Plans for Employees (SIMPLE) IRA, saver’s credit
DISCUSSION:
1. Discuss differences between qualified profit sharing and SIMPLE
plans.
2. Discuss advantages and disadvantages to using SIMPLE IRAs.
QUESTIONS:
1. What is the maximum amount an eligible employee can contribute (in 2009)
to a SIMPLE IRA (not including any catch-up) contributions?
a.
b.
c.
d.
$4,000
$5,000
$8,000
$11,500
Chapter 23, pp. 199, 200
2. Which of the following are requirements for an employer wishing to implement
a SIMPLE IRA?
(1) the only additional plan an employer may maintain for the year is a SEP
(2) employer must have 100 or fewer employees
(3) employee contributions must be made through salary reductions
Chapter 23
(4) employer may make a dollar-for-dollar matching contribution of up to 3%
of employee’s compensation
a.
b.
c.
d.
(1) and (3) only
(1) (2) and (3) only
(2) and (3) only
(1) (2) (3) and (4)
Chapter 23, pp. 200
3. Which of the following are true of contributions to a SIMPLE IRA?
(1) employee salary reduction contributions are subject to FICA
(2) eligible employees may make catch-up contributions of $5,000 in 2009
(3) direct employer contributions are not subject to FICA
(4) employers are required to make a contribution equal to 5% of
compensation for all eligible employees
a. (1) and (3) only
b. (1) (2) and (3) only
c. (2) (3) and (4) only
d. (1) (2) (3) and (4)
Chapter 23, p. 201
4. Which of the following are true regarding plan participation for an employee
who is over age 70½?
(1) the employee can make a deductible contribution to his/her traditional IRA
(2) the employee cannot make a deductible contribution to his/her traditional
IRA
(3) the employer can make contributions to the employee’s SIMPLE IRA
(4) the employer cannot make contributions to the employee’s SIMPLE IRA
a.
b.
c.
d.
(1) and (3) only
(1) and (4) only
(2) and (3) only
(2) and (4) only
Chapter 23, p. 201
ANSWERS:
1. d
Chapter 23
2. c
3. a
4. c