Simple IRA rules and contributions

Submitted by Douglas Bauerband on Mon, 2020-03-09 22:57

I’m a little fuzzy on this one.

a. Can an employer (owner) contribute his max over either under or over 50 but also add a matching of 3% to his own contribution?

or…

b. Is he just allowed to max out the Simple for over or under 50?

c. What makes a SIMPLE IRA unique is that the employer is required to make a contribution on the employee’s behalf – either a dollar-for-dollar match of up to 3% of salary or a flat 2% of pay – regardless of whether the employee contributes to the account.

so does C mean that if an employee signs up but doesn’t contribute a dime, the onwer (employer) is still responsible to contribute the 3% or 2%?

d. Can an employer open a Simple now in 2020 and contribute for 2019 the max for over or under 50?

e. If yes to d, then does he have to contribute to all employees who would want to open regardless of whether they contributed or not?

Thank you very much,

Stay healthy….doug



Submitted by Alan - IRA critic on Tue, 2020-03-10 03:00

  • a is correct, the additional 3% matching contribution is allowed
  •  For c, a matching contribution is not permitted if the employee does not contribute, but a 2% non elective contribution IS permitted. 
  • d – no, too late for 2019. Employer could only start a SIMPLE IRA for 2020 going forward if they previously did not have a SIMPLE IRA. A new employer could start a SIMPLE IRA as soon as administratively feasible.

Submitted by William Tuttle on Tue, 2020-03-10 03:41

  • a/b. A self-employed owner or an S-Corp shareholder-employee must receive the same employer contribution as any other employee.
  • c. That is the difference between an employer match and an employer non-elective employer contribution. With a 3% employer match, the employer only makes a match on 100% of employee deferrals up to 3% of compensation. On the other hand, a 2% non-elective contribution is required regardless of any employee deferral.
  • d. No. A SIMPLE IRA must be adopted by 10/1 of the tax year you want to make contributions for. There is a minimum 60-day notice/enrollment period before the effective date of a SIMPLE IRA plan.
  • e. Depends, see my answer to c.

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