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SIMPLE IRA Plan FAQs - Compensation

Under the SIMPLE IRA plan rules, what's the definition of compensation for an individual who is not self-employed?

For an individual who is not self-employed, compensation means:

  • wages, tips, and other compensation from the employer subject to income tax withholding under section 3401(a),
  • amounts described in Internal Revenue Code Section 6051(a)(8), including elective contributions made under a SIMPLE IRA plan, and 
  • compensation deferred under a 457 plan. 

Compensation doesn’t include amounts deferred under a section 125 cafeteria plan.

For purposes of applying the 100-employee limitation, and in determining whether an employee had $5,000 in compensation for any two preceding years, an employee's compensation also includes the employee's elective deferrals under a 401(k), SARSEP or 403(b) plan.

If you’ve used an incorrect amount of compensation to calculate a participant’s SIMPLE IRA plan contribution, find out how to correct this mistake.


Under the SIMPLE IRA plan rules, what's the definition of compensation for a self-employed individual?

For purposes of the SIMPLE IRA plan rules, a self-employed individual’s compensation means net earnings from self-employment determined under Internal Revenue Code Section 1402(a), prior to subtracting any contributions made to the SIMPLE IRA plan for the individual.

If you’ve used an incorrect amount of compensation to calculate a participant’s SIMPLE IRA plan contribution, find out how to correct this mistake.

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Page Last Reviewed or Updated: 28-Mar-2014