Simple stands for Savings Incentive Match Plan for Employees. It is a retirement plan popular with small business owners because of its simplicity. However, contribution limits are lower than other retirement plans and an employer may not have any other retirement plans at the same time as the Simple IRA.
Each eligible employee opens a traditional IRA account to receive both employee and employer contributions.
However, unlike a profit sharing/401(k) plan, contributions to a SEP are limited to 25% of W2 earnings or 20% of net self-employment income, so a profit sharing/401(k) plan could allow for a higher contribution. Also unlike profit sharing/401(k) plans, the SEP does not allow for Roth-type (after-tax) contributions, nor does it allow for loans.
In 2009 and 2010 the employee contribution limit in a Simple IRA is 11,500 (or 14,000 for age 50+)
Eligibility:
The employer may choose to match up to 3% of salary or to make a non-elective contribution of 2% of pay. The non-elective contribution is made to all eligible employees whether they contribute to their own IRAs or not.