Simple IRA Limits
As with any good thing in life, retirement plans come with limitations. Simple IRAs are retirement plans set by small business owners to help their own employees save for the future. They are great tools that teach financial responsibility and provide a vision for a future past just the here and now. They benefit both the employee and the employer and when set up; they can make for happier workers and a more satisfied environment. However, while Simple IRA plans are one of the most effective and easy to manage retirement plans, they are also typically thought of to be the most restricting. Let’s take a look at some of the Simple IRA limits and the contributions of both employee and employer.
One of the biggest topics of discussion when Simple IRAs are brought up is the topic of contributions. When it comes down to it every qualified and eligible employee in the program has the option of putting some of their salary into their account. This can be easy for employers because it is done automatically along with payroll so there is no extra work to be done. However, when an employee decides to have this automatic deposit, the employer has the responsibility of matching the deposit or opting for a non- elective contribution. Either way puts extra money into the account of the employee, getting “free money” so to speak.
There are limits on this action however, not the least being how much an employee can put into their account each year. As of 2007, employees have the option of putting up to $10,500 per year into their Simple IRA. The amount is calculated according to the cost of living and is sure to go up as time progresses (it was set at $10,000 in 2006). Those who are over 50 years of age, get additional help because they can put up to $2,500 more into their account making their total limit $12,500 per year. An employee can put this money into their account any way they wish and as frequently as they want but they are restricted from going over these contribution limits.
The employer also has limitations under the Simple IRA plan as well. They are required by the IRS to match any employee deposits dollar for dollar up to 3% of each particular employee’s salary; or they can make non-elective contributions, which means they pay a flat 2% of the employee’s salary no matter how much they put in.
While there is a little bit of wiggle room for employees and employers to customize their Simple IRA plan, it is still a pretty restrictive form of retirement planning. However, it allows for one of the easiest managerial retirement accounts and it works to the benefit of both parties. Simple IRA plans, the simple way to a better future!
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