SEP IRA

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The SIMPLE IRA Contribution Limits are more complicated than the Contribution limits for SEP IRA, traditional IRA or Roth IRA. Below is information on how much an employer or employee can contribute to a SIMPLE IRA Account. Each SIMPLE IRA plan can be different based on how the employer set it up.

What are the SIMPLE IRA Contribution Limits?

The amount of Contribution to a SIMPLE IRA plan allowed by the IRS depends on the type of Contribution made to the SIMPLE IRA.

Salary reduction SIMPLE IRA Contributions limit

The employer can make a Contribution to the SIMPLE IRA of an employee for up to $10,500 for the tax year 2008 and 11,500 in the tax year 2009. Additional elective deferrals can be contributed to a SIMPLE IRA plan if:

• the employee is 50 by the end of the tax year, and
• no other elective deferrals can be made for the employee to the plan for the year

Then the most additional elective deferrals can add to the SIMPLE IRA Contribution is the lesser of:

• $2,500 (2008 and 2009) or
• the employee compensation for the year reduced by the other elective deferrals for the year

Matching employer Simple Ira Contributions limit

Some employers will make matching contributions to the SIMPLE IRA to the amount of salary reduction or Contribution by the employee. The cap on the matching Contribution to Simple Ira Plan is 3% of the employee’s total compensation for the year.

Nonelective employer contributions limit to Simple Ira Plan

If the employer chooses to make nonelective contributions to Simple Ira Plan, the contributions must be 2% of the employee’s compensation for the year. For 2007, only $225,000 of the employee’s compensation can be taken into account to calculate the Contribution limit for the Simple Ira Plan.

Question: Can a person make maximum contributions to a SIMPLE IRA and a 401k in the same year?

The person works for two employers, one has a 401k, the other has a SIMPLE IRA.

Answer: There is a maximum you can contribute to your 401(k) and a maximum you can contribute to an IRA. The two have separate limits and one does not affect the other.

Also, if you are contributing to a 401(k) it is generally a good idea to contribute to a Roth IRA as opposed to a traditional IRA unless you need the immediate tax write off.

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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)