A Guide To SIMPLE IRA Contribution Limits

The "SIMPLE" in this IRA stands for "Savings Incentive Match Plan for Employees" and it is proving to be pretty popular because of its higher investment limits. But, there are some things you need to be aware of in terms of SIMPLE IRA contribution limits so that you are able to maximize your investment with this type of plan; that's where these IRAs are anything but SIMPLE.

First off to be eligible for a SIMPLE IRA you need to be working for a company with more than 100 employees. Once that's been established you then need to look at the upper limits of contributions that you're allowed to make each year and what your employer’s specific IRA policies are. Even though an IRA is a lot more straightforward in terms of administration when compared to a 401k, that doesn't mean it's a totally hands-free retirement plan.

From an employer‘s point of view, there are three options. The first option is to match the employee‘s contributions on a dollar-by-dollar basis up to a maximum of 3%, as a general rule, of what the employee contributes (there can be exceptions to this). If the employee doesn't contribute to their SIMPLE IRA the employer does not have to contribute any dollar amount either.

An employer also has the option of contributing less than 3% in compensation but the lower limit here is 1% and it can only be at that lower level for a max of 2 years in a 5 year period.

The third option an employer can choose is the route of contributing a flat 2% in compensation, which needs to be at least $5,000 for that calendar year regardless of what the employees contribute themselves. This is also known as a non-elective contribution.

SIMPLE IRA Contribution Limits For 2011

You're not going to see any changes this year as the contribution limit for your SIMPLE IRA is still going to be $11,500 for 2011 and it is not forecasted to change anytime soon. The exception of course is if you’re over the age of 50, which allows you a maximum contribution of $14,000 per calendar year; you can read more about this in the next section.

Catch Up Contributions In Terms of SIMPLE IRA Contribution Limits

If you have a SIMPLE IRA and you're over the age of 50 you'll be able to make a catch-up contribution of up to $2,500 each year. This was originally meant to be phased out in 2011 but it's ongoing for the time being. Make the most of these if your retirement is coming up soon - you may not have the same options next year. Bear in mind that this type of contribution is not present in every SIMPLE IRA plan and you should talk to your accountant or the proper resource in your company about your SIMPLE IRA contribution limits if your are unsure.

Something else to be aware of is that if an employee is participating in any other elective payment plan with their employer, their total contributios to all payment plans (including their SIMPLE IRA) has a maximum limit of $16,500 for each calendar year.

Election Period for SIMPLE IRA Contributions

When you're paying into a SIMPLE IRA there is a 60-day period leading up to January 1st of every calendar year where you are legally allowed to make changes to your payment plan. You can swap from matching elective contributions to non-elective contributions during this time without affecting your plan or suffering any penalties.

Your employer is also obliged to inform you of any major changes to the plan during this period so you have full awareness of how these changes can affect the plan as a whole and can adjust your plan accordingly if necessary.

Last but not least, don't forget that the final date for your SIMPLE IRA contribution submission is 4/18/2011 for the year 2010 and 4/16/2012 for the year 2011. We hope this article has shed some light on SIMPLE IRA contribution limits for you and you are able to make an educating investment decision for your future.

Here is a short video that talks about SIMPLE IRA contribution amounts.