Which type of IRA is commonly offered by small companies and allows tax-deferred contributions?

A SIMPLE IRA, or Savings Incentive Match Plan for Employees, is specifically designed for small businesses and allows both employers and employees to make contributions. One of the key features of a SIMPLE IRA is that it provides tax-deferred contributions, meaning that contributions made to the account can reduce the taxable income of the individual in the year that the contributions are made. This feature encourages savings for retirement without the immediate tax burden, making it an attractive option for small companies wanting to offer retirement benefits to their employees.

The SIMPLE IRA also has simpler setup and maintenance requirements compared to other retirement plans, making it accessible for small businesses without the resources to manage more complex plans. Employees can contribute up to a certain limit each year and the employer can choose to match contributions or make a fixed contribution.

In contrast, the Traditional IRA is available to individuals regardless of their employer and allows for tax-deferred growth but is not specifically designed for small business offerings. The Roth IRA, while beneficial for tax-free growth on qualified withdrawals, is funded using after-tax dollars, meaning contributions are not tax-deductible. The 401(k) plan is a popular employer-sponsored retirement plan, but it is generally more complex to administer and is typically found in larger companies rather than small businesses