Simple IRA
Can an employee contribute money to Simple IRA that is not otherwise eligible to receive a match? Example: first year employee who is not eligible to participate based upon the 5305, decided to open an account and max it out at $13,500. employer does not make a matching contribution because participant is not eligible.
Is this allowable? Or would the elective contributions from the participant need to be backed out until the participant is eligible per the 5305.
Client currently has a participant contributing elective contributions but the employer is not matching because the particpant is not eligible yet.
Permalink Submitted by Alan - IRA critic on Fri, 2021-08-06 22:47
The employee is not eligible to make a salary reduction election, and client should not have paid those salary reductions to the SIMPLE IRA custodian. Eligibility means eligible to contribute at all, not just eligibility for a matching contribution. The usual corrective activity would be to return the excess and earnings to the participant and report it on a 1099R for the year of distribution. See p 49 of the following:
RP-2021-30 (irs.gov)