Arkansas Administrative Code › Agency 006 - Department of Finance and Administration › Division 05 - Division of Revenues › Regulation 1997-4 - Comprehensive Individual Income Tax Regulations › Rule 26-51-414 - DEFERRED COMPENSATION PLANS › Rule 6.26-51-414 - Savings Incentive Match Plan for Employees (SIMPLE)

Current through Register Vol. 49, No. 6, June, 2024
Beginning in tax years after 1996, eligible employers may
					 maintain SIMPLE retirement plans to provide a tax-favored means of providing
					 for employees' retirement. An eligible employer is an employer that:
1. Employs no more than 100 employees who
				  each received at least $5,000 of compensation from the employer the preceding
				  year, and
2. Does not maintain
				  another employer-sponsored retirement plan to which contributions were made or
				  benefits accrued.
An eligible employer who establishes and maintains a SIMPLE
					 plan for at least one year, but thereafter fails to qualify, continues to be
					 treated as an eligible employer for the two years following the last year in
					 which it did qualify.
An employee is eligible to participate in any calendar year
					 if he or she received at least $5,000 of compensation from the employer during
					 each of the two preceding calendar years and is reasonably expected to receive
					 at least $5,000 in compensation during the current calendar year. A
					 self-employed individual is treated as an employee and may participate in a
					 SIMPLE plan if the compensation threshold is met.
There are two types of SIMPLE plans.
1. Cash or deferred arrangement (CODA)
				  incorporated in a qualified plan (IRC Sec. 401(k)(11)(c)); or
2. An IRA established for each participating
				  employee.
A SIMPLE plan must permit each eligible employee to elect
					 to have the employer make payments either (1) directly to the employee in cash
					 or (2) as a contribution to the SIMPLE account. No contribution, other than
					 elective contributions, employer matching contributions, and nonelective
					 employer contributions may be made to a SIMPLE account. However, a rollover
					 from another SIMPLE account may be received.
Elective contributions are limited to $6,000 for any
					 calendar year. The employer must match the elective contribution of an employee
					 in an amount not exceeding three percent (3%) of the employee's compensation.
					 However, the employer may elect to limit its match, for all eligible employees,
					 to a smaller percentage of compensation not less than one percent (1%). The
					 election may not be made in more than two out of every five years.
Nonelective contributions may be made as an alternative to
					 matching contributions. The employer may elect to make nonelective
					 contributions of two percent (2%) of compensation for each employee who is
					 eligible to participate and who has at least $5,000 of compensation from the
					 employer for the calendar year. The compensation that may be taken into account
					 in determining the two percent nonelective contribution may not exceed an
					 indexed dollar amount. For 1996, this amount is $150,000 for most plans.
Elective contributions of employees are not includable in
					 gross income when made. They are taxed only under the distribution rules that
					 govern distributions from conventional IRAs. IRC Sec. §408(p)(i)(A). Any
					 elective contributions under this plan are included in the sum of elective
					 deferrals, subject to an annual limit on the amount that can be excluded from
					 income. IRC Sec. 402(g)(3)(D).
The employer is entitled to a deduction for its
					 contributions to a SIMPLE account. For deduction purposes, the employer
					 contributions to a SIMPLE account are treated as if they were made to a plan
					 subject to the requirements of IRC Sec. 404(m).
For self employed persons, the contribution is not a
					 business expense, therefore it is not deductible on the schedule C. In the case
					 of a sole proprietorship the contribution may only be claimed as an adjustment
					 to income.
Example:
XYZ Company maintains a SIMPLE
					 retirement plan for its eligible employees. Melinda Jones earns $30,000 from
					 XYZ Company. The company matches the elective contribution in the amount of 3%
					 of the employee's compensation. Ms. Jones elects to contribute $6,000.00 to her
					 SIMPLE account. Ms. Jones has no other income deferrals. XYZ Company makes a
					 matching contribution of $720.00 to Ms. Jones' SIMPLE account. [($30,000 -
					 $6,000) x 3%]. Ms. Jones' wages reported on her W-2 are $24,000.00 and XYZ
					 Company may deduct the $720.00 as an expense.