SIMPLE IRA compensation basis for 3% matching

Submitted by steven Fox-Middleton on Sat, 2018-12-01 00:48

Question:

In a partnership, when you are calculating compensation for making the 3% matching contribution (SIMPLE IRA), do you include guaranteed payments as compensation, for the purposes of calculating the 3% match (the payment is equivalent to a salary)?

Thank you for the insights.



Submitted by Alan - IRA critic on Sun, 2018-12-02 17:07

Not sure, but since SE tax is owed on guaranteed payments, it likely would be included for determining the matching contribution.

Submitted by William Tuttle on Sun, 2018-12-02 18:42

See IRS Publication 560, SIMPLE IRA Plan, Page 9, Compensation.

  • If you are self-employed, compensation is your net earnings from self-employment (line 4 of Short Schedule SE or line 6 of Long Schedule SE (Form 1040)) before subtracting any contributions made to the SIMPLE IRA plan for yourself.

For a partnership this is; Schedule K-1 (Form 1065), box 14, code A * 92.35%.

  • Many people and online calculaors treat this as exactly the same as SEP IRA and one-participant 401k employer contributions which it is NOT. 
  • Make sure for partners you use the IRS PUB 560 Rate Table for Self-Employed. A self-employed individual’s employer contribution itself reduces the compnsation available for the match. Therefore, 3% * 1.0 / 1.03 ~= 2.9126%

 

Add new comment

Log in or register to post comments