Can an Employer Contribute to a SIMPLE & Roth?

by Cindy Quarters

Employer contributions can be a tremendous help for someone trying to build a large retirement fund. Matching programs provide not only a means of attracting qualified employees, but also offer a way to keep them with the company because it takes years before the matching funds are fully vested. A person normally loses any funds that are not vested when upon leaving a company.

SIMPLE Employee Contributions

A simple incentive match plan for employees individual retirement plan, commonly referred to as a SIMPLE IRA, is a retirement account that can be set up by small businesses with fewer than 100 employees. This type of fund allows an employee to contribute pretax dollars to the IRA account, thus reducing his tax liability. As of 2011 an employee can contribute up to $11,500 per year.

SIMPLE Employer Contributions

An employer can contribute matching funds to an employee’s SIMPLE IRA, up to a total of 3 percent of her salary. The employer also is allowed to contribute up to 2 percent more in matching funds to each employee’s SIMPLE IRA if the employer chooses to do so. This benefits the employee by substantially increasing her retirement savings, and it benefits the employer because any IRA contributions can be written off as a business expense.

Roth Employee Contributions

There are income limits on those who can contribute to a Roth IRA. In general, the 2011 limit on modified adjusted gross income (MAGI) for a single person is $105,000 and for a couple it is $167,000 in order to contribute the full amount to a Roth IRA. Contribution limits for 2011 are $5,000 for anyone under 50, and $6,000 for those 50 and over. Contributions are also limited if the account owner puts money into other IRA accounts in his name, although employer matching funds do not reduce the amount the employee can contribute. Contributions can also be limited if the account owner or spouse is covered by a retirement plan at work.

Roth Employer Contributions

A Roth IRA is a type of plan that is usually established independently from an employer’s retirement account. One can also be established as a deemed account, which means it operates under an employer’s retirement plan but only accepts voluntary contributions from the employee. An employer does not contribute any funds to a Roth IRA account. Only the account owner can place funds into a Roth IRA.

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