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SIMPLE IRA Contributions

Savings Incentive Match Plans (SIMPLE IRAs) provide a flexible 401(k) alternative for employers who want to offer retirement benefits to their employees. SIMPLE IRA holders may automatically contribute a percentage of their paychecks and deduct the amounts from their annual income for tax purposes. For example, if you contribute 5% of every paycheck to your SIMPLE IRA, you can subtract 5% from your income when you file your taxes.

Employers can match employee contributions up to 3% of the account holder's compensation. They may also elect to contribute 2% of compensation to all eligible employees regardless of their contribution activities. In calculating employer contributions, up to $280,000 in compensation may be considered in 2019 and up to $285,000 in 2020. If an employee earns $300,000 and contributes 3% of her SIMPLE IRA ($9,000), her employer can only match 3% of $280,000 ($8,400). The same $280,000 cap applies if an employer elects to contribute 2% to all eligible employees, meaning no employee could receive more than $5,600 (2% of $280,000) from his or her employer.

You may not transfer or roll SIMPLE IRA holdings to another account for two years. The clock starts on the date of your initial contribution.

Employer Contribution Example Scenarios

Matching Contributions up to 3% of Compensation

  • "Employee A" earns $50,000 and contributes 10% from every paycheck. His employer can only match up to 3%, meaning his $5,000 employee contribution (10% of $50,000) will be matched by a $1,500 employer contribution (3% of $50,000) for a total SIMPLE IRA deposit of $6,500.
  • "Employee B" also earns $50,000 but only elects to contribute 2.5% from her paychecks ($1,250). Her contributions lie beneath the 3% threshold, so her employer will fully match the $1,250 for a total contribution of $2,500.

Contributions of 2% to all Eligible Employees

  • "Employee C" makes $40,000 and contributes 3% of his paychecks, but his employer has elected to contribute 2% to every employee with a SIMPLE IRA. As such, Employee C's $1,200 contribution (3% of $40,000) will be met with a $800 contribution (2% of $40,000) from his employer.
  • "Employee D" and "Employee E" each earn $40,000 as well. Employee D contributes 10% of her paychecks, while Employee E contributes absolutely nothing. Both employees will receive 2% employer contributions irrespective of their individual contribution activities.

Contribution Deadlines & Annual Limits

Tax Year Annual Employee Limit
(below age 50)
Annual Employee Limit
(age 50 or above)
Contribution Deadlines
2019 $13,000 $16,000
  • Employee Contributions - December 31st or the year's final paycheck
2020 $13,500 $16,500
  • Employer Contributions - Business tax filing deadline, plus extensions

Cash or assets that you transfer or roll from another qualified plan will not count against these annual limits. You can make a contribution to a new SIMPLE IRA for the current tax year if the account is opened by October 1st of that calendar year.

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