Q:

What is a 408(p) retirement plan?

A:

Quick Answer

A simple IRA plan is also known as a 408(p) retirement plan. It is a simplified, tax-favored retirement plan for small employers with fewer than 100 employees. Employees can make salary deferral contributions, and employers must make matching contributions or nonelective contributions.

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Full Answer

For 2015, the contribution limits are 100 percent of eligible compensation up to a maximum of $12,500 by the employee and either 100 percent of a 3 percent matching of eligible compensation or, if using the nonelective contribution, 2 percent of eligible compensation up to a maximum of $5,100 by the employer. Distributions from a simple IRA are generally included as income for the year received, and withdrawals before the age of 59 1/2 might be subject to a 10 percent additional tax.

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