One of the most common retirement savings plans for the self-employed and the small business workers is the SIMPLE IRA plan. However, few people understand the SIMPLE IRA rules. This article will outline these SIMPLE IRA rules for you, leaving you with a much better understanding of this particular retirement savings program.

As mentioned before, one of the SIMPLE IRA rules you must be aware of is that it is only for small businesses. Companies with more than 100 employees are not eligible for this retirement plan. One of the SIMPLE IRA rules that often is overlooked, mostly because of its insignificance, is that employees must have received at least $5000 in compensation over the last two years, and they must be expecting to make at least $5000 during the current year. A simple IRA rule, but an important one.

Withdrawing money from a SIMPLE IRA account is riskier business than withdrawing from a normal 401k account. Possibly the most important SIMPLE IRA rule to remember is this: If you withdraw funds from your IRA savings before you have had the account for two years, you will be charged a 25% penalty. After the two-year limit is up, you will only be charged 10%, just like any other IRA plan. SIMPLE IRAs do not offer loans either, so withdrawing funds from your SIMPLE IRA early is not a good idea and should be avoided at all costs.

All SIMPLE IRA plans have this simple IRA rule—all plans have an annual contribution limit. This limit is $11,500 per year, but if you are over the age of 50, an additional $2500 can be added to that number. One of the biggest benefits of the SIMPLE IRA plan is that employees have complete control over their investments, a benefit that not all retirement plans offer.

The last SIMPLE IRA rule I will outline here will probably make you very happy—your employer is required to match the contribution you make to your account every year. For example, if you are matching 4%, your employer is required to match 4% as well. However, if your employee chooses not to match, they have the option to do a non-elect contribution, which means that they have to contribute 2% of your salary no matter what the circumstances are. Either way, you are getting money from your employer for your retirement savings.

All in all, the SIMPLE IRA rules are quite simple. You only have to remember five things and you know all there is to know: (1) A SIMPLE IRA is only for the self-employed or for small businesses, (2) you must be making at least $5000 a year to qualify, (3) the two-year rule requires that you pay a 25% penalty fee if you withdraw funds from your account before you have had it for two years (otherwise you are only penalized 10%), (4) you can contribute up to $11,500 every year, and (5) your employer must match whatever you contribute. Know these five things, and you will be a SIMPLE IRA expert.