When Are SIMPLE IRA Contributions Due?

SIMPLE IRA contribution deadlines explained

Reviewed by Khadija KhartitFact checked by Vikki VelasquezReviewed by Khadija KhartitFact checked by Vikki Velasquez

A savings incentive match plan for employees (SIMPLE) IRA is an employer-sponsored plan that provides employees with a tax-advantaged way to save for retirement. The deadlines for SIMPLE IRA contributions vary depending on the type of contribution and whether the employer or employee is making it. The following is a breakdown of what you need to know about these special retirement accounts.

Key Takeaways

• Deadlines for SIMPLE IRA contributions vary by type of contribution and whether the employer or employee is making it.
• Employers can either match employee contributions or contribute on their behalf.
• Contributions that are not made on time may incur fees or necessitate filing an amended tax return.

How SIMPLE IRAs Work

As the name implies, SIMPLE IRAs are designed to be easily established and administered, particularly when compared to other employer-sponsored plans such as 401(k) plans. Businesses, including sole proprietors, with less than 100 employees can set up a SIMPLE IRA.

There are two ways that contributions are made to a SIMPLE IRA:

• Employers can match employee contributions
• Employers can make contributions on behalf of their employees

Depositing SIMPLE IRA deferred compensation, matching, and nonelective contributions when they are due will avoid penalties and needing to amend tax returns.

Deadlines for Employee Contributions

Contributions to SIMPLE IRA plans that are taken from an employee’s paycheck as a salary-reduction contribution are due within 30 days of the month in which the deferred payments were made. For instance, the contributions must be deposited into the SIMPLE plan by Oct. 30 of the same year for money taken from an employee’s pay in September.

In 2024, the contribution limit for employees is $16,000, and those aged 50 and older can make an additional catch-up contribution of as much as $3,500 each year.

If the SIMPLE IRA is set up for someone who is self-employed and there are no other employees, contributions that are reductions in pay must be deposited within 30 days of the end of the year or Jan. 30 of the following year.

Deadlines for Employer Contributions

An employer may choose to make either matching contributions to an employee’s SIMPLE IRA, from 1% to 3% of his or her salary, or non-elective contributions of 2% of the employee’s salary, no matter what or if the employee contributes.

But there are deadlines for employers to make contributions to their employees’ SIMPLE IRAs—the same way that there is a deadline to contribute to a 401(k) and IRA. Contributions made on the part of the employer are due by the business’ filing due date for the tax year—usually April 15, or Oct. 15 if there is an extension.

Department of Labor Rules

The Department of Labor (DOL) rules that govern SIMPLE IRA plans are different from the Internal Revenue Service (IRS) requirements. According to the DOL, employers must make contributions that are taken from an employee’s salary as soon as they can reasonably do so, but no later than seven business days for businesses with fewer than 100 employees.

This rule does not generally apply to business owners with no employees or whose only employee is their spouse.

What Is a SIMPLE IRA?

A SIMPLE IRA is a type of retirement plan established by businesses with 100 or fewer employees, self-employed individuals, or sole proprietors. Employers must make either a matching contribution of up to 3% of the employee’s annual compensation or a nonelective contribution for each employee of 2%. Contributions are capped to a certain limit, which is set and adjusted annually for inflation.

What Is the Contribution Limit for a SIMPLE IRA?

The contribution limit for a SIMPLE IRA is $16,000 for 2024. If you are 50 or older, you are allowed an additional catch-up contribution of $3,500.

Who Can Establish a SIMPLE IRA?

SIMPLE IRAs can only be established by qualifying entities. These include employers with 100 or fewer employees, self-employed individuals, or sole proprietors.

The Bottom Line

You don’t have to work for a large corporation to take advantage of an employer-sponsored retirement plan. The SIMPLE IRA is meant for businesses with 100 or fewer employees. You can also participate in this plan if you are a self-employed individual or a sole proprietor. Taking part in this plan gives you tax benefits and vested employer contributions that can help you reach your retirement goals.

Read the original article on Investopedia.