SIMPLE owner not participating in ER contribution
Can an owner elect not to receive a Simple IRA 2% employer contribution? Currently, the owner is not participating in the SIMPLE and is making a 3% match for employees who do participate. He has 3 ee’s, and all 3 participate. He now wants to make a 2% empoyer instead of the 3% match to reduce his liability to the plan. If he contributes 2% to all eligible, can he as the owner, elect not to receive the 2% contribution. Or must he make a contribution for himself also.
Permalink Submitted by Alan Spross on Fri, 2011-12-16 00:30
It appears that a self employed individual is treated as an employee under 401(c)1 with respect to a SIMPLE IRA, and therefore should be able to decline participation like any other employee.
However, notices to change matching contributions must be made before the 60 day election period that starts Nov 2nd, so it is too late to reduce the match % for 2012 at this point.
Permalink Submitted by Peter Lingane on Fri, 2011-12-16 05:14
As I understand the query, the issue is whether the owner can exclude himself if he elects a 2% contribution on behalf of all employees, whether they defer money on their own behalf or not, as opposed to a 3% match of elective employee contributions.
The boss, whether self employed or a corporate employee, is an eligible employee unless his or her compensation is very low. It seems unlikely therefore that a 2% nonelective SIMPLE plan could be designed which excluded the owner.
The queried situation is unusual since owners usually try to maximize their share of the business income and their share of the pension pie. Perhaps this business owner is altruistic. Perhaps it would be prudent to ask a tax professional to review compliance with relevant income tax, pension and ERISA guidelines.
Permalink Submitted by Alan Spross on Fri, 2011-12-16 19:19
I think the intent was to just make the optional matching reduction to 2% instead of changing to a non elective contribution. But either way, it is probably too late for 2012 since employees should be notified prior to the 60 day election period that starts on 11/2.