SIMPLE IRA Eligibility Rules
Can you help me interpret eligibility rules if a company has a SIMPLE IRA plan and the elgibility requirements are “all employees receiving $5k in compensation during any 1 plan year, any reasonably expects to receive $5k in comp during the current year are eligible.” Does the one year mean 1 year from anniversay date of hire or 1 calendar year? For instance, if someone started a job on 9/11/24 and they made $5k by 12/30/24 (and expect to receive $5k in comp in 2025), does that mean they can start contributing to the plan on 1/1/25. How do you put a one year restriction on the plan? Thank you.
Permalink Submitted by Alan - IRA critic on Wed, 2024-09-11 17:41
It’s the calendar year. Employer can select the # of years and the amount of comp (must be 5000 or less). See Article I in the 5304 or 5305 SIMPLE form. If this form indicates 5k of prior year comp, that much must be earned by the end of 2024 in order to be eligible for 2025.
But of course, the employer can change the requirements with the required annual Notice due by 11/2 of each year indicating the requirements for the upcoming Jan 1.
Permalink Submitted by Kelly Keltner on Thu, 2024-09-12 10:59
Thank you for the reply. So, if a Simple Plan is set up as follows: “employees receiving at least $5,000 in compensation during any 0 prior years, and who reasonably expects to receive $5,000 in comp during the current year are eligible” – does this mean that an employee is immediately eligible or do they still have to wait until 1/1 or the following year to sign up. Another scenario we ran into is $0 in compensation in 0 prior years and who reasonable expec to receive at least $1 in comp during the current year are eligible. Simple plans do not seem very simple 🙂 Thanks again for the guidance and help.
Permalink Submitted by Alan - IRA critic on Thu, 2024-09-12 11:22
That employee would be immediately eligible if there was 0 prior year compensation. The current year expected comp could also be reduced to $1 if desired. See Notice 98-4, QA C-2. But these requirements cannot be changed mid year, only effective on 1/1 per the annual Notification.