On a similar note...
On a similar note...
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The 401(k) isn’t the only employer-sponsored retirement account around. SIMPLE IRAs may be an option for employees of smaller companies and the self-employed who want tax-advantaged savings for their futures.
SIMPLE IRA contribution limits
The annual SIMPLE IRA contribution limits in 2020 and 2021 are:
Under age 50: $13,500
Age 50 and older: $16,500
These contribution limits are lower than those for a 401(k), which allows employees to contribute up to $19,500 for 2020 and 2021 ($26,000 for those age 50 or older).
But people with a SIMPLE IRA may take part in another employer-sponsored plan (say, if a person had more than one job) and make contributions up to a total of $19,500.
What's more, while employers are not required to match employee contributions to a 401(k), generally they must kick in on a SIMPLE IRA, either matching contributions of up to 3% of employee compensation, or fixed contributions of 2% to every eligible employee. (The "SIMPLE" stands for "Savings Incentive Match Plan for Employees.")
Aside from the different contribution limits — and the fact that SIMPLE IRAs are available only at companies with fewer than 100 employees — the two work similarly. Just as a 401(k) does, a SIMPLE IRA allows investors to defer taxes on contributions and investment growth until the cash is used in retirement.
2020 and 2021 contribution limits
50 and older
Traditional or Roth IRA
Other important notes for a SIMPLE IRA:
Rollover period: Participants in a SIMPLE IRA can roll their cash into a traditional IRA two years after first contributions to the account
Big penalty for early withdrawal: As with many tax-advantaged accounts, you face a 10% penalty on top of regular income taxes for withdrawing before age 59½. But for SIMPLE IRA withdrawals within the first two years, that tax penalty is increased to 25%. Other withdrawal rules are similar to those for traditional IRAs.