The 401(k) plan isn't the only employer-sponsored retirement plan around. Instead, the SIMPLE IRA may be an tax-advantaged option for the self-employed and small business owners who want to help their employees save for retirement.
SIMPLE IRA contribution limits 2024
The annual SIMPLE IRA contribution limits in 2024 are:
Under age 50: $16,000.
Age 50 and older: $19,500.
SIMPLE IRA contribution limits 2023
The annual SIMPLE IRA contribution limits in 2023 were:
Under age 50: $15,500.
Age 50 and older: $19,000.
These contribution limits are lower than those for a 401(k). But people with a SIMPLE IRA may take part in another employer-sponsored plan (say, if a person had more than one job) and make contributions up to a total of $23,000 in 2024.
What's more, while employers are not required to match employee contributions to a 401(k), generally they must kick in on a SIMPLE IRA, either matching contributions of up to 3% of employee compensation, or fixed contributions of 2% to every eligible employee. (The "SIMPLE" stands for "Savings Incentive Match Plan for Employees.")
Aside from the different contribution limits — and the fact that SIMPLE IRAs are available only at companies with fewer than 100 employees — the two work similarly. Just as a 401(k) does, a SIMPLE IRA allows investors to defer taxes on contributions and investment growth until the cash is used in retirement.
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Other important notes for a SIMPLE IRA:
Rollover period: Participants in a SIMPLE IRA can roll their cash into a traditional IRA two years after first contributions to the account
Contribution due dates: Employee salary reduction contributions need to be done within 30 days of the last day of the month in which the funds would have been otherwise paid to the employee. Employer matching or nonelective contributions need to be made by the federal income tax return deadline, including extensions.
Big penalty for early withdrawal: As with many tax-advantaged accounts, you face a 10% penalty on top of regular income taxes for withdrawing before age 59½. But for SIMPLE IRA withdrawals within the first two years, that tax penalty is increased to 25%. Other withdrawal rules are similar to those for traditional IRAs.
» Thinking about the future? Learn about succession planning for your business.
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