Which of the following statements is true regarding SIMPLE plans?

The statement regarding SIMPLE plans that is true is that contributions and earnings are tax-deferred until funds are withdrawn. This characteristic is a fundamental aspect of SIMPLE IRAs (Savings Incentive Match Plan for Employees). When employees or employers contribute to a SIMPLE IRA, those contributions reduce the taxable income for that year, allowing the funds to grow tax-deferred. Taxes are only paid when the funds are withdrawn, typically during retirement, which can often be at a lower tax rate, providing a tax advantage.

Regarding the other statements, contributions being taxed immediately contradicts the tax-deferred nature of SIMPLE plans. Furthermore, the ability to withdraw funds at any time without penalty is misleading since there are generally penalties on early withdrawals unless specific conditions are met. The claim that only employer contributions are tax-deferred is inaccurate because employee contributions also enjoy tax-deferred status. Thus, acknowledging the tax-deferred growth until withdrawal truly captures the essence of how SIMPLE IRA plans function.