SIMPLE IRA contributions include:
- salary reduction contributions and
- employer contributions: a. matching contributions or b. nonelective contributions.
No other contributions can be made to a SIMPLE IRA plan.
Salary reduction contributions
The amount an employee contributes from their salary to a SIMPLE IRA cannot exceed $12,500 in 2015 – 2018.
If an employee participates in any other employer plan during the year and has elective salary reductions under those plans, the total amount of the salary reduction contributions that an employee can make to all the plans he or she participates in is limited to $18,500 in 2018 ($18,000 in 2015 – 2017). See more than one plan.
Catch-up contributions. If permitted by the SIMPLE IRA plan, participants who are age 50 or over at the end of the calendar year can also make catch-up contributions. The catch-up contribution limit for SIMPLE IRA plans is $3,000 in 2015 – 2018.
Employer matching contributions
The employer is generally required to match each employee’s salary reduction contributions on a dollar-for-dollar basis up to 3% of the employee’s compensation. This requirement does not apply if the employer makes nonelective contributions instead.
Lower percentage. An employer may choose to make a matching contribution less than 3%, but it must be at least 1% and for no more than 2 out of 5 years. See Notice 98-4 for more information. The employer must notify the employees of the lower match within a reasonable period before the 60-day election period for the calendar year.
Instead of matching contributions, an employer can choose to make nonelective contributions of 2% of each eligible employee’s compensation. If the employer makes this choice, it must make nonelective contributions whether or not the employee chooses to make salary reduction contributions. An employee’s compensation up to $275,000 for 2018 ($270,000 for 2017) is taken into account to figure the contribution limit.
If the employer chooses this 2% contribution formula, it must notify the employees within a reasonable period before the 60-day election period for the calendar year.
If you miscalculated elective deferrals and employer contributions and contributed less than required by the SIMPLE IRA plan document, find out how to correct this mistake.
If you haven’t timely given the annual notice to all eligible employees, find out how to correct this mistake.
Time limits for contributing funds
Employers must deposit employees’ salary reduction contributions to the SIMPLE IRA within 30 days after the end of the month in which the employee would have received them in cash. They must make matching contributions or nonelective contributions by the due date (including extensions) of their federal income tax return for the year.
If your plan is subject to Department of Labor rules, you may have to deposit employees’ deferrals sooner. Generally, plans that benefit employees other than an owner-employee (and spouse) are subject to the Department of Labor rules. These rules require you to transfer your employees’ elective deferral contributions to their SIMPLE IRAs at the earliest date on which the employer can reasonably segregate the contributions from the employer’s general assets. There is a 7-day safe harbor to deposit elective deferrals for which most SIMPLE IRA plans qualify.
If you haven’t deposited salary reduction contributions to employees’ SIMPLE IRAs by the above dates, find out how you can correct this mistake.