Can I Contribute to a SIMPLE IRA if My Employer Does Not Match?

by Deborah Barlowe, studioD

The Internal Revenue Service allows a business of fewer than 100 employees establish a SIMPLE IRA plan during the next calendar year. If an employer establishes a SIMPLE IRA plan, the IRS requires the company to make contributions into the retirement accounts established for each of the company’s participating or eligible employees every year. An eligible employee retains his right to contribute to a SIMPLE IRA account regardless of how the employer makes its mandated contributions.

Employer Matching Contributions

The IRS allows an employer with a SIMPLE IRA plan to choose between two types of required annual contributions, matching and nonelective. If an employer elects to make matching contributions to the retirement accounts of its employees, the IRS requires the employer to make contributions only to the accounts of employees who choose to defer a portion of their salaries into their own accounts. An employer may match up to 3 percent of the compensation paid to an employee participating in the plan.

Employer Nonelective Contributions

If an employer chooses to make nonelective annual contributions to the retirement accounts of its employees, the IRS requires the employer to contribute to the accounts established for every eligible employee, whether or not they choose to defer a portion of their pay into their own accounts. An employer choosing to make nonelective contributions must deposit 2 percent of an eligible employee’s compensation into the employee’s retirement account. As of publication, an employer may consider the first $245,000 of an employee’s pay when determining the nonelective contribution it will make to the employee’s IRA account.

Employee Eligibility

The IRS permits a business to establish parameters that define an employee’s eligibility to participate in a SIMPLE IRA plan within guidelines dictated by the IRS. While an employer may choose to identify lower standards of eligibility in its SIMPLE IRA plan document, the IRS requires an employer to consider any employee as eligible who has earned at least $5,000 from the company in either of the two preceding years.

Employee Contributions

Every eligible employee of a company offering a SIMPLE IRA plan may contribute to his own retirement account by making elective salary reduction contributions. As of publication, an employee may defer up to $11,500 of his annual compensation into his SIMPLE IRA. If an employee is 50 years old or older, the IRS permits him to defer an additional $2,500 of his pay into his IRA account.

About the Author

Deborah Barlowe began writing professionally in 2010. With experience in earning securities and insurance licenses and having owned a successful business, her articles have focused predominantly on finance and entrepreneurship. Barlowe holds a bachelor’s degree in hotel administration from Cornell University.

Photo Credits

  • Jupiterimages/liquidlibrary/Getty Images