SIMPLE IRA contributions include:
-
salary reduction contributions and
-
employer contributions: a. matching contributions or b. nonelective contributions.
No other contributions can be made to a SIMPLE IRA plan.
Salary reduction contributions. 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% 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%, but it must be at least 1% and for no more than 2 out of 5 years. See Notice 98-4 for more information. The employer must notify the employees of the lower match within a reasonable period before the 60-day election period for the calendar year.
Nonelective contributions. Instead of matching contributions, an employer can choose to make nonelective contributions of 2% 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% 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.
Additional Resources:
Publication 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans)
Publication 4334, SIMPLE IRA Plans for Small Businesses
FAQs regarding SIMPLE IRA Plans
Source: http://www.irs.gov/retirement/participant/article/0,,id=211345,00.html
