Retirement Savings Practice Test 2025 – Complete Exam Prep

A SIMPLE IRA, or Savings Incentive Match Plan for Employees, is a retirement savings option available to small businesses and eligible employers. The establishment of a SIMPLE IRA is particularly beneficial as it allows employees to save for retirement with tax advantages while also requiring the employer to make contributions.

In the context of the provided choices, a union plan bargained in good faith is considered suitable for permitting the establishment of a SIMPLE IRA by an eligible employer. This is because union plans often involve agreements that support employee benefits, including retirement savings options, which align with the intent of SIMPLE IRAs to create accessible saving mechanisms for employees, particularly in smaller organizations or those with union representation.

The other plan types listed do not directly support the establishment of a SIMPLE IRA in the same straightforward way. For instance, while a 403(b) plan is geared towards employees of non-profit organizations and educational institutions, it operates under different regulations. Defined benefit plans are typically structured to provide a predefined payout at retirement rather than focusing on individual contributions, and profit-sharing plans generally require more complexity in administration and contribution formulas that are not specifically aligned with the SIMPLE IRA structure. Thus, the union plan, which supports collective bargaining efforts that secure various employee benefits, fits the requirements necessary for establishing a SIMPLE