SIMPLE IRA Plan FAQs - Participation


Which employees are eligible to participate in my SIMPLE IRA plan?

All employees who received at least $5,000 in compensation from you during any 2 preceding calendar years (whether or not consecutive) and who are reasonably expected to receive at least $5,000 in compensation during the calendar year, are eligible to participate in the SIMPLE IRA plan for the calendar year. If you’ve excluded eligible employees from your SIMPLE IRA plan, find out how to correct this mistake.

May a participant "opt out" of a SIMPLE IRA plan?

An employee may not "opt out" of participation. Of course, any eligible employee may choose not to make salary reduction contributions for a year, in which case the employee would accrue no employer matching contributions for the year, but would receive an employer nonelective contribution for the year if the plan provides for it.

Are there employees who I may exclude from my SIMPLE IRA plan?

You may choose to exclude employees who are:

  1. covered by a collective bargaining agreement, if retirement benefits were the subject of good faith bargaining between you and the employee representatives;
  2. covered by a collective bargaining agreement between you and air pilots represented in accordance with Title II of the Railway Labor Act; and
  3. nonresident aliens and who received no U.S. source earned income.

May I impose less restrictive eligibility requirements?

You may eliminate or reduce the prior year compensation requirement, the current year compensation requirement, or both. For example, you could allow participation for employees who received $3,000 in compensation during any preceding calendar year. However, you cannot impose any other conditions on participation.

May an employee participate in a SIMPLE IRA plan if he or she also participates in a plan of a different employer for the same year?

An employee may participate in a SIMPLE IRA plan even if he or she also participates in a plan that is sponsored by a different employer for the same year. However, the employee's salary reduction contributions are subject to the limitations of section 402(g), which provides an aggregate limit on the exclusion for elective deferrals for any individual. Similarly, an employee who participates in a SIMPLE IRA plan and an eligible 457(b) deferred compensation plan is subject to the limitations described in section 457(c). You are not responsible for monitoring compliance with either of these limitations.

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