Questions about SIMPLE IRA

From: T Koyn <koyn@users.anet-stl.com>
Subject: Questions about SIMPLE IRA
Date: Sun, 17 May 1998 16:32:04 -0500 (CDT)

Next Article (by Subject): Rental Condo BobWo
Previous Article (by Subject): Re: persfin-digest V5 #14 Kent Shaw
Articles sorted by: [Date] [Author] [Subject]

A friend is considering setting up a SIMPLE IRA for a sole proprietorship
sideline business and we have a few questions about the SIMPLE IRA and the
other alternatives:

1. If the sole proprietorship shows a profit of say, $3000.00 for the
year, can the entire $3000.00 be put aside (since it is less than the
$6000 SIMPLE limit)?  Or how much can be put aside?

2. Does one pay self employment taxes on the money put in a SIMPLE IRA?
What about the alternatives SEP IRA? Keogh? 401K? Profit sharing plan?
Money purchase plan? Do any of these save on self employment taxes?

3. With a SIMPLE and sole proprietorship, how do "employer contributions"
work?  If profit is $3000.00, what is maximum that can be put aside?
$3000.00?  $3000.00 + 3% match = $3090.00?  If profit is $10,000, would
max be $6000.00 (the yearly employee contribution limit) + 3% match =
$6180.00?

4. Can use of a SIMPLE be combined with a traditional IRA or ROTH IRA?
Would the total that can be set aside then be limited to the lesser of
$6000.00 + employer match + $2000.00 and total earned income?

5. What are the tax reporting requirements for a SIMPLE?  Where on the tax
forms is contribution entered?  Any additional forms to be filed when
starting, terminating, or maintaining the plan?

6. I understand that employees who have received $5,000 pay two years must
be included in the plan.  Is there a minimum profit level before the sole
proprietor may include him/herself?  Does one have to earn $5,000 profit
to use the SIMPLE?

7. Can a sole proprietor change to another type of plan for a later year,
e.g. a profit sharing/money purchase plan?  This would be more appropriate
if profits increase.  Could they change back to the SIMPLE if profits
later decline, making the SIMPLE more attractive again?  The SIMPLE is
good for low profit situations because it does not specify a 15-25%
percentage of earnings limit.

8. For a sole proprietorship, when during the year must the plan be
started?  When must the year's contribution be sent in by?  Can the
contribution be sent until April 15, so that the actual profit could be
calculated to ensure the contribution does not exceed the profit?

9. If a person later starts a second business or takes a job that also
uses a SIMPLE, can both business/work activitives use SIMPLE and would the
limit on contributions then be $6000.00 for both combined, or is $6000.00
limit per business or job?

If you know the answers to any or all of these questions, I would
appreciate it greatly if you could share your knowledge with the group and
send me an email copy.  Thanks in advance for any help you provide.

koyn@anet-stl.com





- -

Next Article (by Subject): Rental Condo BobWo
Previous Article (by Subject): Re: persfin-digest V5 #14 Kent Shaw
Articles sorted by: [Date] [Author] [Subject]

Go to Jeff Salisbury LWGate Home Page.