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WHERE DO YOU WANT YOUR MONEY TO TAKE YOU TODAY?

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with no penalty. You may also roll over the SIMPLE into a traditional IRA, provided the 25-percent penalty has disappeared.

Similar to SEP plans, SIMPLE IRAs are traditional IRAs that meet the stringent requirements for being a SIMPLE. Plan contribu- tions must be made to the SIMPLE IRA, not to a traditional or a Roth IRA. Eligible employees and self-employed workers may make con- tributions that are either a percentage of expected compensation or a fixed dollar amount.

As with SEP plans, employees are immediately 100 percent vested in their employer’s contributions to their SIMPLE accounts. They may take withdrawals at any time from the plan, bearing in mind the tax laws. If we compare SIMPLE and 401(k) feature by feature, the advantage almost always goes to the

Special note: With the recent tax law changes by Congress, new rules regarding employer-sponsored retirement plans have been instituted. They are:

  • Annual additions to a participant’s profit sharing or 401(k) account, including employee and employer contributions and allocated forfeitures, may be as high as $40,000 (or 100 percent of compensation, whichever is less)—this is up from $35,000 or 25 percent of compensation. The amount for 403(b) accounts is $35,000.

  • A benefit of as much as $160,000 (or 100 percent of aver- age compensation, whichever is less) may be provided for a defined pension plan benefit for years beginning after January 1, 2002—this is up from $140,000 and 100 per- cent of compensation.

  • Plans may consider up to $200,000 of the participant’s compensation when applying contribution limits—this is up from $170,000.

  • Participants who are age 50 and older who have contributed the maximum amount are allowed to “catch up” and con- tribute more the their retirement plans. (See Table 14.4.)

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