D) $11,500

A) $5,000

Incorrect. Try again!

B) $7,500

Incorrect. Try again!

C) $10,000

Incorrect. Try again!

D) $11,500

Correct.

A SIMPLE IRA (Savings Incentive Match PLan for Employees) plan allows employees and employers to contribute to traditional IRAs set up for employees. It's an ideal start-up retirement plan for small employers not currently sponsoring a retirement plan.

Under a SIMPLE IRA plan, employees may choose to make salary reduction contributions and the employer makes matching or nonelective contributions. All contributions are made directly to an Individual Retirement Account or Individual Retirement Annuity (IRA) set up for each employee (a SIMPLE IRA).

The amount the employee contributes to a SIMPLE IRA cannot exceed $11,500 for 2011 and 2012.

If an employee participates in any other employer plan during the year and has elective salary reductions under those plans, the total amount of the salary reduction contributions that an employee can make to all the plans he or she participates in is limited to $16,500 in 2011 ($17,000 in 2012).

Catch-up contributions: If permitted by the SIMPLE IRA plan, participants who are age 50 or over at the end of the calendar year can also make catch-up contributions. The catch-up contribution limit for SIMPLE IRA plans for 2011 and 2012 is $2,500.

Employer matching contributions: The employer is generally required to match each employee's salary reduction contributions on a dollar-for-dollar basis up to 3 percent of the employee's compensation. This requirement does not apply if the employer makes nonelective contributions instead.

Lower percentage: An employer may choose to make a matching contribution less than 3 percent, but it must be at least 1 percent and for no more than 2 out of 5 years.

Nonelective contributions: Instead of matching contributions, an employer can choose to make nonelective contributions of 2 percent of each eligible employee's compensation. If the employer makes this choice, it must make nonelective contributions whether or not the employee chooses to make salary reduction contributions. An employee's compensation up to $245,000 (for 2011; $250,000 for 2012) is taken into account to figure the contribution limit.

If the employer chooses this 2 percent contribution formula, it must notify the employees within a reasonable period before the 60-day election period for the calendar year.

Time limits for contributing funds: Employers must deposit employees' salary reduction contributions to the SIMPLE IRA within 30 days after the end of the month in which the employee would have received them in cash. They must make matching contributions or nonelective contributions by the due date (including extensions) of their federal income tax return for the year.