If you are a Schedule C filer (a sole proprietor) and have a SIMPLE IRA plan, you are treated as both an employer and an employee when calculating and reporting your own plan contributions and limits. Here are some tips.
Where do I report the contributions I make for myself to my SIMPLE IRA?
Report both your salary reduction contributions and employer contributions (non-elective or matching) for yourself on line 28 of Form 1040.
This is different from reporting employer contributions (non-elective or matching) for your common-law employees, which you would do as a business expense on your Schedule C.
When must I deposit the contributions I make for myself to my SIMPLE IRA?
You must deposit your salary reduction contributions within 30 days after the end of the tax year. For most people, this means salary reduction contributions for a year must be made by January 30 of the following year.
You must deposit your employer contributions by the due date (including extensions) of your federal income tax return for the tax year that includes the last day of the calendar year for which you made the contributions. For most people, this means employer contributions for a year must be made by April 15 of the following year, or by October 15 if on extension.
What is the maximum contribution I may make for myself to my SIMPLE IRA?
Salary reduction contributions
You may defer up to $12,500 in 2016, 2017, and 2018 (adjusted for cost-of-living in later years). However, you may not exceed your net earnings from self-employment from the business sponsoring the SIMPLE IRA plan. If you are age 50 or over, you can make a catch-up contribution of up to $3,000 in 2016, 2017, and 2018 (adjusted for cost-of-living in later years).
Employer contributions for yourself must be the same type and rate as the contributions you make for your common-law employees. You must either:
- match your salary reduction contributions dollar-for-dollar up to 3% of your net earnings from self-employment; or
- make a non-elective contribution of 2% of your net earnings from self-employment that do not exceed $265,000 for 2016. This amount was $270,000 for 2017 and $275,000 for 2018, and it is adjusted for cost-of-living in later years.
Your net earnings from self-employment are the amount you report on line 4 of Short Schedule SE or line 6 of Long Schedule SE (Form 1040) before you subtract any SIMPLE IRA plan contributions you make for yourself.
Your business sponsors a SIMPLE IRA plan. In 2013, your employee, John, earned $25,000 and chose to defer 5% of his salary. Your net earnings from self-employment were $40,000 (as reported on your Form 1040, Schedule SE), and you chose to defer 10% of your earnings to your SIMPLE IRA. You elected to make 3% matching contributions for 2013 for all your employees.
The total SIMPLE IRA plan contribution for John is $2,000.
|John’s salary reduction contributions ($25,000 × 5%)||$1,250|
|Employer matching contribution ($25,000 × 3%)||$ 750|
You deduct John’s contribution on your Form 1040, Schedule C. You must deposit John’s $1,250 salary reduction contributions to his SIMPLE IRA:
- at the earliest date on which you can reasonably segregate them from your business’ general assets, but no later than 30 days following the month in which John would have otherwise received the money; or
- within 7 business days after John would have otherwise received the money, to meet the Department of Labor’s 7-day safe harbor for SIMPLE IRA plans with fewer than 100 participants.
You must deposit the $750 employer matching contribution no later than the due date of your federal income tax return, including extensions.
Your total plan contribution is $5,200.
|Salary reduction contributions ($40,000 × 10%)||$4,000|
|Employer matching contribution ($40,000 × 3%)||$1,200|
You deduct the plan contributions for yourself on line 28 of your Form 1040. You must deposit your $4,000 salary reduction contribution to your SIMPLE IRA no later than January 30, 2014. You must deposit the $1,200 employer matching contribution no later than the due date of your federal income tax return, including extensions.
- Self-Employed Individuals – Calculating Your Own Retirement-Plan Contribution and Deduction
- Publication 560, Retirement Plans for Small Business
- Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs)
- Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs)
- FAQs – SIMPLE IRA Plans