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SIMPLE IRA Plan Employer Contribution

The only employer contribution you can make to your SIMPLE IRA plan is either:

  • a matching contribution capped at 3% of compensation, or
  • a 2% nonelective contribution.

You can’t make both.

Matching contribution
You can choose to make a matching contribution for each employee’s salary deferrals on a dollar-for-dollar basis up to 3% of the employee's compensation. In this instance, compensation is not limited by the annual compensation limit, but you can’t exceed the 3% cap.

Less than 3% match - You can reduce the 3% matching contribution for a particular year, but only if:

  • you don't reduce it below 1%, and
  • you don't reduce it more than twice in the 5-year period ending with that year.

2% nonelective contribution
Instead of the matching contribution, you can choose to contribute 2% of each eligible employee’s compensation regardless of whether or how much the employee defers. For nonelective contributions, an employee’s compensation is limited to the annual compensation limit ($250,000 in 2012 and $255,000 in 2013).

Notice
You must annually:

  • choose whether to make:
    • the matching contribution (and the match limit), or
    • the nonelective contribution, and

  • notify all employees of your choice before the election period.

Regardless of your business structure, you must use the same contribution formula for all employees (including yourself).

Changing the contribution type or percentage
You can’t amend or terminate a SIMPLE IRA plan mid-year. Once you’ve notified your employees of the type and percentage of employer contributions you’ll make for a year, you can’t change your mind. For example, if you notify your employees you’ll make the 2% nonelective contribution for the upcoming year, you can’t then decide to make the 3% matching contribution for that year. Likewise, if you’ve notified your employees that you’ll make the matching contribution with a 3% cap, you can’t reduce the cap to 2%.

Additional resources:

 

Page Last Reviewed or Updated: 30-May-2014