SIMPLE IRA – How soon can a new employee contribute?
Our office currently has a SIMPLE IRA plan for employees. We have a new employee in the office who has been with us for a couple of months and is interested in contributing to a SIMPLE IRA. Our current adoption agreement states, “Limited Eligibility – Eligibility is limited to each Employee who satisfies the requirements (a) Prior Year Compensation – An employee who has received at least $5,000 in Compensation during any 1 preceding year.” According to this language, I am unsure on what restrictions can be placed on a SIMPLE IRA. Can an employee contribute to a SIMPLE IRA from day one? Would they be eligible for a match as well? As an employer, can we put a time or compensation restriction that the employee has to meet first before they can begin contributing and/or begin receiving a match?
Permalink Submitted by Alan - IRA critic on Tue, 2016-08-02 23:09
If there is no current year compensation amount required, the only condition for immediate coverage is 5,000 in one preceding year. SInce the new employee does not have any prior year compensation, they are not eligible in 2016. However, if they earn 5,000 this year and your plan is not amended for 2017, the employee will be eligible in January 2017. Once they are eligible to contribute they are also eligible for the match for that year. You could make the prior year requirement 5,000 for TWO years effective 2017 with proper 60 day notification and the new employee would then not be eligible until 2018, but would probably not be happy with the new restriction.