SIMPLE Plan Salary Reduction Contribution Limits

SIMPLE IRA plan contributions are made up of salary reduction contributions and employer contributions. As the employer, you must either make matching contributions or nonelective contributions. No other contributions may be made to a SIMPLE IRA plan.

For tax year 2012, the maximum amount each eligible employee can choose to have the employer contribute to his SIMPLE IRA cannot be more than $11,500 (same as 2011).

These contributions must be expressed as a percentage of the employee's compensation unless you permit the employee to express them as a specific dollar amount.

The employer cannot place restrictions on the employee's own contribution amount except to comply with the $11,500 limit.

Plan participants who are age fifty (50) or over at the end of the calendar year can make catch-up contributions. The catch-up contribution for tax year 2012 is $2,500 (same as 2011).

If you or an employee participates in any other qualified plan during the year and your or

your employee have salary reduction contributions (elective deferrals) under those plans, the salary reduction contributions under a SIMPLE IRA plan count toward the overall annual limit of $17,000 for 2012 ($16,500 for 2011) on exclusion of salary reduction contributions and other elective deferrals.

Who Contributes to a SIMPLE IRA?

Both the employees and the employer contribute to SIMPLE IRAs.

Employees:

Under a SIMPE plan, employees can choose to contribute part of their pay (salary reduction contributions) to their own SIMPLE IRA account.

Employer:

The employer, is required to make either:

  • Matching or
  • Nonelective (mandatory) contributions on behalf of employees.

File your personal and small business taxes (Schedule C)