First year Simple IRA match?

Submitted by T Anderson on Sun, 2023-01-01 21:55

My employer opened a Simple IRA in 2021. The effective date was September of 2021 and I maxed out the account by December. They are claiming that they only match 3% from the effective date not the calandar year gross compensation. I have sought advice from two CPA’s and found discussions on here that support the match being for the calendar year reguardless of when the effective date is, but I cannot specifically find anything on the IRS website that talks about this dilemma.

Does anyone know where I can find a document stating what the proper match is for the first year when the effective date is later than Jan 1st?



Submitted by Alan - IRA critic on Sun, 2023-01-01 22:31

  • Employer is wrong. Following is QA 4 from Notice 98-4 which confirms that the match limit is based on the applicable % of your entire annual salary. That said, since it’s a match it still cannot exceed your actual contributions.
  • “Q. D-4: What employer matching contribution is generally required under a SIMPLE IRA Plan? A. D-4: Under a SIMPLE IRA Plan, an employer is generally required to make a contribution on behalf of each eligible employee in an amount equal to the employee’s salary reduction contributions, up to a limit of 3 percent of the employee’s compensation for the entire calendar year.”


Submitted by T Anderson on Mon, 2023-01-02 15:35

Thank you for the reply and for this info. I have sent them this info prior and they are stating that the IRS examples are implying that the plan was effective on Jan 1st. Therefore they do not owe me the 3% for the entire calendar year still because the IRS does not specifically give an example stating what to do when the effective date is later than Jan 1st. What can I do? 



Submitted by David Mertz on Mon, 2023-01-02 17:55

  • That argument by the employer is invalid.  The only examples I am aware of to which the employer might be referring are those in IRS Pub 560 which say nothing about whether or not the example applies only to plans that were in existence on January 1.  Even if one of these examples was intended to be an example for a full-year plan, such an example could not be used as guidance that less than the full annual compensation is to be used for a part-year plan.
  • With respect to a SIMPLE IRA plan, section 408(p)(6)(C) explicitly defines “year” to mean “calendar year.”  Section 408(p)(2)(A)(iii) requires the employer to “make a matching contribution to the simple retirement account for any year in an amount equal to so much of the amount the employee elects under clause (i)(I) as does not exceed the applicable percentage of compensation for the year.”  (In this case, the employer has specified that the applicable percentage is 3%.)  This translates to the employer being required to make a matching contribution equal to (all of) the employee’s contributions for the year to the extent that the matching contributions do not exceed 3% of annual compensation.  Nothing in the tax code permits the employer to consider only compensation received by the employee after the effective date of the plan.
  • In the absence of the employer satisfying this obligation, your recourse is probably to file a complaint with the Department of Labor:  https://www.dol.gov/agencies/whd/contact


Submitted by Alan - IRA critic on Mon, 2023-01-02 18:13

Their position may be logical, but it is not correct. While SIMPLE plans are basically calendar year plans and this one should probably have been started 1/1, the plan can start mid year if this is their first SIMPLE plan. Don’t know what else you can do without creating employer disfavor with you. Have you asked the SIMPLE custodian for help?  Note that the 5304 or 5305 SIMPLE adoption forms and definition of “compensation” in those forms all refer to your comp for the year, not just the term of the plan or for the time you contributed.  You could call the IRS, but even if you reach a competent staffer, it won’t help with your employer unless they send the answer to you in writing. 



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