SEP IRA

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SIMPLE IRA Contribution Limits

Just like any other types of IRA, there are SIMPLE IRA Contribution Limits. The SIMPLE IRA Contribution Limits govern how much the SIMPLE IRA plan owner can contribute to the SIMPLE IRA Account and are not penalized by the IRS.

What are the SIMPLE IRA Contribution Limits? How much can a self-employed individual contribute to his or her own SIMPLE IRA?

SIMPLE IRA Plan contribution limits for a self-employed individual are expressed as a percentage of the individual’s “net earnings from self-employment” [not over 100% and not exceeding $10,000 for 2006 plus $2,500 if 50 years old or over (catch up SIMPLE IRA Contribution Limits).

For a SIMPLE IRA Plan, “net earnings from self-employment” is found on Schedule SE (Form 1040), Self-Employment Tax, before subtracting any contributions made to the Simple Ira Plan for the individual and employees.

Example: The employer’s net earnings from self-employment are $40,000 and the employer chooses to contribute 10% of his earnings to his SIMPLE IRA. The employer elects to make matching Simple Ira Contributions of up to 100% of each employee’s deferral but not more than 3% of each employee’s compensation. The total SIMPLE IRA contribution the employer can make for himself is $5,200, which is calculated as follows.

SIMPLE IRA contribution calculation

Salary reduction contribution ($40,000 x .10)	$4,000
Employer matching contribution ($40,000 x .03)	$1,200
Total SEP IRA contributions	$5,200

Question: can I take tax benefits for both a SEP IRA and traditional ira ? are there limits?

Answer: You need to download publication 590 on the IRS website. It is easy to read with a lot of examples. http://www.irs.gov

The Ballad of Ira Hayes – Kris Kristofferson

Question: Can I have both a SIMPLE IRA and a ROTH IRA? What are the Contribution limits for each?

Answer: The SIMPLE IRA is a low-maintenance retirement plan that offers many features of the more common 401(k) without the complexity, administrative burden and increased administration costs. The SIMPLE allows self-employed business owners or “side business owners” to defer up to a maximum of $6,500 a year (plus certain matching Contribution amounts) from their net business earnings
The ideal candidate for a SIMPLE is a self-employed individual who makes less than $35,000 and has the financial resources available to maximize retirement plan contributions. With a SIMPLE, the maximum Contribution would be $7,470 ($6,500 elective deferral portion plus a matching Contribution of $970) which is greater than the maximum amount allowed with a SEP or a combination Keogh plan.

The combined maximum allowed for the Traditional IRA and a Roth IRA is limited to $4,000 per year, or $4,500 for age 50 and over)