SIMPLE IRA
Employee’s annual salary is $50,000. Employee defers 3% on first $40,000 of wages ($1,200) and then stops the deferral for the rest of the year. Employer plan document states employer will match 3%. What is the dollar amount that the employer must contribute since employee technically did not contribute 3% of the full $50,000?
Permalink Submitted by Alan - IRA critic on Thu, 2022-02-03 21:34
The matching contribution limit is the lesser of 3% of the entire 50,000 or the amount of employee’s salary reduction contributions. Stopping the deferrals does not affect the first figure, but it might affect the secIf an employee starts or stops salary reduction contributions in the middle of the year, can I make my 3% match based only on the compensation earned during the period they actually contributed?
“You must base your SIMPLE IRA plan employer matching contribution on the employee’s entire calendar-year compensation, regardless of when the employee starts or stops contributing during the year. The maximum matching contribution is always 3% of the employees’ compensation for the entire calendar year. Matching contributions may be made on a per-pay-period basis, or by the due date of the employer’s tax return (including extensions).”