How do you contribute to a simple IRA?


Quick Answer

Employees can contribute to a SIMPLE IRA by reducing their salaries and transferring the money into the IRA. After an employee contribution is made, the employer has to make either a non-elective contribution or a contribution that matches the employee's.

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Full Answer

SIMPLE IRA plans are common with small employers who don't yet offer a traditional retirement plan but desire to give employees a start-up retirement plan. Employees are able to decide how much they contribute to their accounts from their salaries. The contribution can be stated as either a portion of the employee's salary for the entire year or as a specific dollar amount. Except to adhere to the yearly limit on salary reduction contributions, employers aren't allowed to place boundaries on how much employees can contribute.

As of May 2015, employers are able to defer as much as $12,500 to a SIMPLE IRA plan. Employees who are 50 or older are permitted to make catch-up contributions at a limit of $3,000. All contributions are susceptible to cost-of-living adjustments for later years. Employers are not permitted to suspend, lower or raise their matching contributions to SIMPLE IRAs in the middle of the year, and they have to honor the contributions they proposed to employees in the SIMPLE IRA plan notice, according to the IRS.

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