SIMPLE IRA 5,000 and 2 year rule

Submitted by Jack Thomas on Tue, 2014-10-28 20:40

Summary description states that employees are eligible for the SIMPLE IRA who have received $5,000 during any two calendar years. Say an employee starts Dec. 2013 and did not make $5,000 that year then made more than $5,000 in 2014. Couple questions.

1. Does the $5,000 in “any two calendar years” mean that the employee has to make $5,000 in each calendar year or is it a total between the 2 different years?

2. As far as the 2 year rule applies, does the employee get credit for one full year in 2013 even though they worked for part of the year. Meaning in the example above, the employee is eligible for the plan Jan. 1, 2015? (assuming they met the $5,000 earnings requirement).

Thanks again.



Submitted by Alan - IRA critic on Tue, 2014-10-28 21:00

  1. The 5,000 requirement applies separately to each calendar year. There are no carryovers or carry backs. In your example, 2013 will not count because employee fell short of the 5,000 that year.
  2. As above, 2013 will not count so employee will have only one year entering 2015.
  3. There is also a 2 year waiting period to take distributions. That period starts with the date of the first contribution in Dec 2013 and is satisfied sometime in Dec, 2015.

Submitted by Jack Thomas on Tue, 2014-10-28 21:09

Very helpful, just one point of clarification.  Assuming the employer only required employees to make $1 in a calendar year, would an employee get credit for a calendar year last year 2013 if they worked one month in December 2013 and made a dollar?

Submitted by Alan - IRA critic on Tue, 2014-10-28 23:09

Yes, they only need to meet the stated threshold.

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