What are the vesting rules for a SIMPLE IRA?


Quick Answer

Simple IRA funds are always fully vested. This is also true of the Simple 401(k), but not true of some of the other widely used retirement plans, including the traditional 401(k) or the 401(k) Safe Harbor Plan, explains Raymond James.

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Full Answer

With a Simple IRA, employers choose between two approaches when making a contribution, notes Raymond James. They may match employees’ contributions up to 3 percent of their compensation or make a non-elective contribution of up to 2 percent of employees’ compensation. Unlike a Simple IRA, all employee deferrals are fully vested with a 401(k), but it is possible for employer contributions to be placed on a vesting schedule. With a 401(k) Safe Harbor Plan, both employee deferrals and mandatory employer contributions are fully vested. Additional employer contributions may be placed on a vesting schedule.

There are two ways of implementing a Simple IRA: as a self-directed IRA or a vendor’s product. A self-directed IRA puts no limitations on possible investments. A vendor’s product is offered by a provider, such as a mutual fund or an insurance company, and that provider may restrict available investments. The advantage of a vendor’s product is that the service is much easier and less expensive, however, at the cost of investment flexibility, according to Raymond James.

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