Simple IRA matching
I recently set up a Simple IRA for a company with two employees. The owner agreed to do the 3% match every year.
He set up the plan on August 1st. Does he have to make the 3% match for his salary and his employee’s salary for all of 2022, or only the salaries from August 1st – December 31?
Permalink Submitted by Alan - IRA critic on Thu, 2022-10-13 17:04
The salaries for the entire year apply to the matching dollar limit, but perhaps employees will contribute less in 5 months than they would have in 12 months.
Permalink Submitted by Robert Roselli on Thu, 2022-10-13 18:00
I set this up in August 2021. The employee had W2 earnings of $ 44,669.08. 3% of that is $ 1,340.07.From the date the plan became effective until 12/31/2021, he earned $ 18,790.29. 3% of that is $ 563.71.Since the employer agreed to do a 3% match on all contributions, are they obligated to match $ 1,340 (all of 2021) or $ 563 (from August 2021- 12/31/2021)? It seems logical the answer if $ 563 only the time that the employee contributed.
Permalink Submitted by Alan - IRA critic on Thu, 2022-10-13 21:45
Another way of putting this is that the employer matching contribution is the lesser of what the employee contributed or 3% of total year earnings. Therefore, the max matching contribution here would be 1,340, but if employee contributed less than 1340, the match would be limited to what the employee contributed to the plan. You did not indicate how much the employee actually contributed.
Permalink Submitted by Robert Roselli on Fri, 2022-10-14 12:58
The employee contributed $ 525, so that would be the match since it’s less than 3% of his earnings ($1,340).The owner is also eligible for a 3% match. He earned $ 71,300.51. 3% of his earnings is # 2,139.02. He contributed $ 2,900. In his case, we will use 3% of his earnings, which is $ 2,139.02.Thanks for clarifying this. I spent hours talking to the custodian’s retirement services group and a couple of different accountants.