SEP IRA

Posts Tagged ‘eligibility requirements’

SIMPLE IRA Eligibility Requirements, Continued

• The 2 year/$5,000 compensation requirement is the maximum Eligibility an employer may require. The employer may elect to decrease the number of years of service or the compensation requirement or both.

For example, an employer can require that an employee worked in one prior year, and made only $3,000 in that year.

• Any Eligibility Requirements the employer sets in the SIMPLE Plan apply to all employees, including the business owner.

For example, an employer started her new business, ABC Corp., on May 31, 2003 and established a SIMPLE IRA Plan effective for 2004. The maximum years of service the employer can require is one year.

What information does financial Institutions usually provide SIMPLE IRA Account owners?

To employees :

• Quarterly Account Statements (statements are sent monthly whenever there is account activity or a Contribution is made to the employee’s account.
• IRS Form 5498 showing total Contribution amounts made during the calendar year and Fair Market Value (year-end account value) of the SIMPLE IRA Account.
• IRS Form 1099-R if a distribution was paid to the SIMPLE IRA Account owner.
• Annual Summary of SIMPLE Plan Rules is sent once a year to all SIMPLE IRA owners.

SIMPLE IRA Eligibility Requirements

What are the Eligibility requirements for employees to participate in a SIMPLE IRA plan?

Generally, any employee who received compensation of $5,000 or more in any prior two years and who the employer reasonably expects to receive at least $5,000 in compensation in the current year is eligible to participate.

Employees in collective bargaining units and nonresident aliens may be excluded.

All employees of a controlled group or affiliated service organization who meet the Eligibility requirements, including leased employees described in Code sections 414(n) and (o) must be allowed to participate.

The related organizations that employ these employees must join the establishment of the SIMPLE plan.

Note:

For example, XYZ Corp. established a SIMPLE IRA plan, effective January 1, 2003. XYZ Corp’s SIMPLE IRA plan requires an employee to have worked during any two prior years and to have made at least $5,000 in each of those years.

Mary Smith started working with XYZ on November 1, 2002 and is currently employed with the firm. Mary earned $6,000 in W-2 wages with XYZ Corp. in 2002 and earned $25,000 in W-2 wages in 2003. Mary is eligible to participate in the SIMPLE IRA plan on January 1, 2004.