The Savings Incentive Match Plan for Employees -- better known as the Simple individual retirement account -- offers a streamlined retirement savings plan for small companies that have fewer than 100 employees. These accounts provide the same tax-deferred savings as traditional IRAs. Unlike traditional IRAs, however, you don't have to quit making contributions to a Simple account just because you've turned 70 1/2 years old.
If you're an employee of a company that offers a Simple IRA for employees, you're allowed to contribute even if you're older than 70 1/2. The Internal Revenue Service specifically prohibits your employer from excluding you from participating in the Simple IRA because of your age. As long as you're still an otherwise eligible employee, you're allowed to defer some of your income into the Simple IRA.
When you're eligible to participate in a Simple IRA, your employer must make matching contributions. The employer can either match your contributions dollar for dollar up to 3 percent of your salary or just put in 2 percent of your salary whether you contribute or not. Whatever method the employer chooses must be used for all employees. For example, the employer can't choose to use the automatic 2 percent for employees who contribute a lot and the matching contribution for employees who don't contribute.
Though you're allowed to contribute after you've turned 70 1/2 years old, you're also required to take required minimum distributions from the Simple IRA each year. The size of the distributions depends on your age and the value of your Simple IRA at the end of the previous year. For example, to figure your required minimum distribution for 2013, use your age and account value as of Dec. 31, 2012.
Penalties for Skipping Distributions
If you don't take the required minimum distributions from your Simple IRA each year, you are hit with a tax penalty that generally outweighs the value of any tax benefits of using the account. You must pay a penalty equal to 50 percent of the amount you should have withdrawn but failed to take out. For example, if you were supposed to take $8,000 out but you forgot about this obligation, you owe a $4,000 tax penalty.
Based in the Kansas City area, Mike specializes in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."