Simple IRA Maximums

Many employers are migrating to the Simple IRA retirement plans for the ease of setup, the low-cost annual maintenance, and the attractive investment options for their employees.   

In this article, we will discuss Simple IRA contribution maximums for 2011 and 2012.  We will also assess the catchup contributions and simple IRA matching rules.

Maximums.....

For 2011 and 2012 the Simple IRA contributions are set at $11,500.  Up from $6,000 in 2001, this limit has almost doubled in the last 8 years giving employees a great opportunity for tax deferral.

With 2012 contribution limits now attached to certain inflation indexes, the IRS and Treasury departments have determined that the new maximums will remain at $11,500.  Many experts were expecting a decrease of contribution maximums, but it did not happen.  It is important to note that all future adjustments will also be tied the same index.

Simple IRA Catch-Up Contributions

In addition to the above, 2011 and 2012 simple IRA catch-up contributions are $2,500.  The simple IRA catchup gives participants 50 years old and older the ability to sock away a little extra before retirement.  Future catchup contributions will be indexed for inflation.

Matching Rules

If you’ve been watching the news lately, many employers using a 401k as a company retirement plan have discontinued the match to help offset the decrease in revenues.  However, for employers offering a simple IRA retirement plan, employers are required by the IRS to offer a match.  Employees are safe from losing their match in a simple IRA.

Under simple IRA rules, employees generally defer into their own simple IRA account and the employer contributes to the employees’ account, required to choose one of the following two methods. 

1. Employers may match employee contributions dollar-for-dollar up to 3% of the employee’s compensation, or
2. Employers may make contributions at 2% of all eligible employees’ compensation.  This match contribution is made without consideration of employee contributions.  In other words, if an eligible employee doesn’t defer contributions into their own Simple IRA, employers still must contribute 2% to each eligible employee’s Simple IRA account when this option is chosen.

The Simple IRA satisfies a need for thousands of small businesses.  For many employers, the low Simple IRA contribution limits and the ease of installing a Simple IRA make this retirement plan a great choice.

 

401kFundAdvice offers personal, professional Simple IRA investment advice to Simple IRA participants.