Simple IRA Deferral Limit Brings Advantages To Employers And EmployeesEmployers who maintain a simple IRA plan for its employees are required to make contributions each year that the plan is in effect. Employees have an elective simple IRA deferral limit which they can contribute to these plans. The simple IRA deferral limit that employers make must be deposited into employee accounts within 30 days following the deferral period. Employers must complete all deposits to the simple IRA accounts by their tax filing deadline. Simple IRA Deferral Limit - Employees Employees who are eligible to participate in their employer's retirement plan may defer at least 100% of the annual dollar limit. The amount is $10,500 for 2008. If an employee is over 50, he or she may defer an additional $2,500 to the simple IRA plan. The simple IRA deferral limit amount has increased from $8,000 in the last five years. Simple IRA Deferral Limit - Employers Employers who maintain a simple IRA plan are required to make at least one of two types of contributions for each employee. The dollar-for-dollar matching contribution is made on behalf of eligible employees who make elective deferral contributions. These amounts should not exceed 3% of the employee's annual compensation. The other type of contribution is a non-elective contribution which is made on behalf of all eligible employees whether or not the employee chooses to participate. This amount cannot exceed 2%. Options to Employers Employers have options for meeting the simple IRA deferral limit requirements during the life of the plan. The 3% matching contribution that is required can be reduced to 1% for two out of five years. Employers may also replace the matching contribution with a 2% non-elective contribution. Employers may also replace the matching contribution with a 2% non-elective contribution. The contribution is treated as if it were the full 3% and the employer still has time remaining to make a contribution that is less than 3%. Benefits of Using the Simple IRA Deferral Limit There are benefits for employers and employees who use the simple IRA deferral limit to manage retirement funds. Employers can continue to make contributions even if they have employees over age 70 even though that person cannot make contributions. Employees are 100% vested in the IRA and have complete control of the accounts. The only disadvantage is that employees will need to consider other retirement vehicles because deferral limit are restricted to lesser amounts than with other qualified plans.
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