Savings Incentive Match Plans (SIMPLE IRAs) provide a flexible 401(k) alternative for employers who want to offer retirement benefits to their employees. SIMPLE IRA holders may automatically contribute a percentage of their paychecks and deduct the amounts from their annual income for tax purposes. For example, if you contribute 5% of every paycheck to your SIMPLE IRA, you can subtract 5% from your income when you file your taxes.
Employers can match employee contributions up to 3% of the account holder's compensation. They may also elect to contribute 2% of compensation to all eligible employees regardless of their contribution activities. In calculating employer contributions, up to $280,000 in compensation may be considered in 2019 and up to $285,000 in 2020. If an employee earns $300,000 and contributes 3% of her SIMPLE IRA ($9,000), her employer can only match 3% of $280,000 ($8,400). The same $280,000 cap applies if an employer elects to contribute 2% to all eligible employees, meaning no employee could receive more than $5,600 (2% of $280,000) from his or her employer.
You may not transfer or roll SIMPLE IRA holdings to another account for two years. The clock starts on the date of your initial contribution.
|Tax Year||Annual Employee Limit |
(below age 50)
|Annual Employee Limit |
(age 50 or above)
Cash or assets that you transfer or roll from another qualified plan will not count against these annual limits. You can make a contribution to a new SIMPLE IRA for the current tax year if the account is opened by October 1st of that calendar year.
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