Do you know your Simple IRA contribution limits for 2021? They are much different than your standard IRA contribution rules. When people contribute to a Simple IRA, as opposed to a Roth IRA or traditional IRA account they do so through employer contributions and contributions involving reductions in salaries.
Simple IRA contributions can include two different types. The first is employer contributions, which can take the form of either a non-elective payment or a matching contribution. The second type comes from the employees themselves in the form of salary deductions.
For employees, you are allowed to make salary contributions of any value into an existing Simple IRA plan as long as these deductions do not exceed limits specified by the law. The largest amount of money that an employee is allowed to contribute to a simple IRA plan in 2021 is thirteen thousand five hundred dollars. This reflects no changes from the previous 2020 limit.
Combining Your Simple IRA Plan. If your employer offers an additional plan that you take part in that also includes an elective salary reduction, then additional limits apply. In particular, the Simple IRA rules dictate that total contributions to all employer sponsored plans in 2021 cannot exceed nineteen thousand five hundred dollars. In 2020, this amount was nineteen thousand five hundred dollars. These amounts are not subject to individual retirement account income limits.
Employees are allowed to modify their contribution levels each year while the plan is in its election period without violating IRS rules. The election period as specified by the employer must be a minimum of 60 days in length, and employees must be notified in advance about election opportunities that are on the way. Simple IRA plans that are already in effect are required to have a yearly election period that spans the time between November 2nd and December 31st. Plans are allowed to have multiple election periods each year beyond the required 60 day election period.
Simple IRA Catch-Up Contributions. Miss your contribution in 2021? Don’t worry. Employees who are at least 50 years in age are allowed to deposit additional contributions, which are also known as catch up contributions. Any employee who will reach 50 years of age at any point during the calendar year is allowed to make catch up contributions throughout the entire year in question. The Simple IRA limit for catch up contributions in 2021 is three thousand dollars.
This means that if you turn fifty or over in 2021, your maximum Simple IRA contribution is set at sixteen thousand five hundred dollars for the 2021 tax year.
Employer Contribution Maximums. For employer contributions, you must choose between non-elective or matching contributions. Employers are allowed to select either method to make their employer contributions each year. Employees who are eligible must be informed while the election period is ongoing which method of contribution will be in place for that year.
Most employers choose to make matching contributions up to three percent of the employee’s participation level. Only the employees who are eligible and who chose to make contributions will be able to get an employer contribution, which will be a matching contribution. You are allowed to reduce the 3 percent salary limit to an even lower percentage, but you are not allowed to decrease it below 1 percent. You are also not allowed to decrease the 3 percent salary limit beyond 2 full years out of the 5 year time span that ends during the calendar year where the reduction is in place.
Alternatively, Simple IRA rules allow employers to make non-elective contributions. These are set at two percent of your eligible employee’s total salary. With this option, you are required to make the two percent contribution whether or not your employee participates in salary deductions. The upper salary limit to consider is set at two hundred and eighty five thousand dollars in 2021.
Simple IRA Deadlines. Employers must deposit non-elective and matching contribution by the same deadline of their federal tax return. Contributions from salary reductions must be deposited within the Simple IRA at least 30 days after the employee would have normally received a paycheck.
|Date||Contribution Limit Under 50||Contribution Limit – over age 50||Deadline|
|2021||$13,500||$16,500||04/15/2022 (extensions apply)|
|2020||$13,000||$16,000||05/17/2021 (extensions apply)|
|You must establish SIMPLE IRAs by October 1.|