Form 5304-Simple - Savings Incentive Match Plan For Employees Of Small Employers (Simple) - Not For Use With A Designated Financial Institution Page 5

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Form 5304-SIMPLE (Rev. 3-2012)

Page

Additional Information

Matching Contributions

the reduction in the employee’s

compensation cannot exceed the

In general, you must contribute a matching

applicable amount for any calendar year.

Timing of Salary Reduction

contribution to each eligible employee’s

The applicable amount is $11,500 for 2012.

Contributions

SIMPLE IRA equal to the employee’s salary

After 2012, the $11,500 amount may be

reduction contributions. This matching

increased for cost-of-living adjustments. In

The employer must make the salary

contribution cannot exceed 3% of the

the case of an eligible employee who is 50

reduction contributions to the financial

employee’s compensation. See Definition

or older by the end of the calendar year,

institution selected by each eligible

of Compensation, below.

the above limitation is increased by $2,500

employee for his or her SIMPLE IRA no

You may reduce this 3% limit to a lower

for 2012. After 2012, the $2,500 amount

later than the 30th day of the month

percentage, but not lower than 1%. You

may be increased for cost-of-living

following the month in which the amounts

cannot lower the 3% limit for more than 2

adjustments.

would otherwise have been payable to the

calendar years out of the 5-year period

employee in cash.

Timing of Salary Reduction

ending with the calendar year the reduction

Elections

The Department of Labor has indicated

is effective.

that most SIMPLE IRA plans are also

Note. If any year in the 5-year period

For any calendar year, an eligible employee

subject to Title I of the Employee

described above is a year before you first

may make or modify a salary reduction

Retirement Income Security Act of 1974

established any SIMPLE IRA plan, you will

election during the 60-day period

(ERISA). Under Department of Labor

be treated as making a 3% matching

immediately preceding January 1 of that

regulations at 29 CFR 2510.3-102, salary

contribution for that year for purposes of

year. However, for the year in which the

reduction contributions must be made to

determining when you may reduce the

employee becomes eligible to make salary

each participant’s SIMPLE IRA as of the

employer matching contribution.

reduction contributions, the period during

earliest date on which those contributions

which the employee may make or modify

To elect this option, you must notify the

can reasonably be segregated from the

the election is a 60-day period that

employees of the reduced limit within a

employer’s general assets, but in no event

includes either the date the employee

reasonable period of time before the

later than the 30-day deadline described

becomes eligible or the day before.

applicable 60-day election periods for the

previously.

year. See Timing of Salary Reduction

You can extend the 60-day election

Definition of Compensation

Elections above.

periods to provide additional opportunities

for eligible employees to make or modify

Nonelective Contributions

“Compensation” means the amount

salary reduction elections using the blank

described in section 6051(a)(3) (wages,

in Article II, item 2b. For example, you can

Instead of making a matching contribution,

tips, and other compensation from the

provide that eligible employees may make

you may, for any year, make a nonelective

employer subject to federal income tax

new salary reduction elections or modify

contribution equal to 2% of compensation

withholding under section 3401(a)), and

prior elections for any calendar quarter

for each eligible employee who has at least

amounts paid for domestic service in a

during the 30 days before that quarter.

$5,000 in compensation for the year.

private home, local college club, or local

Nonelective contributions may not be

You may use the Model Salary Reduction

chapter of a college fraternity or sorority.

based on more than $250,000* of

Agreement on page 3 to enable eligible

Usually, this is the amount shown in box 1

compensation.

employees to make or modify salary

of Form W-2, Wage and Tax Statement.

reduction elections.

To elect to make nonelective

For further information, see Pub. 15,

contributions, you must notify employees

(Circular E), Employer’s Tax Guide.

Employees must be permitted to

within a reasonable period of time before

Compensation also includes the salary

terminate their salary reduction elections at

the applicable 60-day election periods for

reduction contributions made under this

any time. They may resume salary

such year. See Timing of Salary Reduction

plan, and, if applicable, compensation

reduction contributions for the year if

Elections above.

deferred under a section 457 plan. In

permitted under Article II, item 2b.

determining an employee’s compensation

However, by checking the box in Article II,

Note. Insert “$5,000” in Article III, item

for prior years, the employee’s elective

item 2d, you may prohibit an employee

2b(i) to impose the $5,000 compensation

deferrals under a section 401(k) plan, a

who terminates a salary reduction election

requirement. You may expand the group of

SARSEP, or a section 403(b) annuity

outside the normal election cycle from

employees who are eligible for nonelective

contract are also included in the

resuming salary reduction contributions

contributions by inserting a compensation

employee’s compensation.

during the remainder of the calendar year.

amount lower than $5,000.

For self-employed individuals,

Contributions (Article III)

Effective Date (Article VII)

compensation means the net earnings

from self-employment determined under

Only contributions described below may be

Insert in Article VII the date you want the

section 1402(a), without regard to section

made to this SIMPLE IRA plan. No

provisions of the SIMPLE IRA plan to

1402(c)(6), prior to subtracting any

additional contributions may be made.

become effective. You must insert January

contributions made pursuant to this

1 of the applicable year unless this is the

Salary Reduction Contributions

SIMPLE IRA plan on behalf of the

first year for which you are adopting any

individual.

As indicated in Article III, item 1, salary

SIMPLE IRA plan. If this is the first year for

reduction contributions consist of the

which you are adopting a SIMPLE IRA

Employee Notification

amount by which the employee agrees to

plan, you may insert any date between

reduce his or her compensation. You must

January 1 and October 1, inclusive of the

You must notify each eligible employee

contribute the salary reduction

applicable year.

prior to the employee’s 60-day election

contributions to the financial institution

period described above that he or she can

selected by each eligible employee.

make or change salary reduction elections

and select the financial institution that will

serve as the trustee, custodian, or

*This is the amount for 2012. For later years, the limit may be increased for cost-of-living adjustments. The IRS announces the increase, if any,

in a news release, in the Internal Revenue Bulletin, and on the IRS’s website at IRS.gov.

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