Employers with 100 or fewer employees are eligible to establish
a SIMPLE IRA if they maintain no other type of plan. As with a SEP,
an Individual Retirement Account (IRA) is established for each
employee. Employees may make pre-tax salary deferral contributions
to the plan up to the lesser of 100% of annual compensation, or the
amount in the following table:
| SIMPLE IRA Deferral
Limits |
| Year |
Deferral
Amount |
| 2002 |
$7,000 |
| 2003 |
$8,000 |
| 2004 |
$9,000 |
| 2005 |
$10,000 |
| Thereafter
increases for inflation in $500 increments. |
In addition, EGTRRA added a provision to allow participants ages
50 and older a "Catch-Up" deferral.
| SIMPLE IRA Catch-Up Deferral
Limits |
| Year |
Deferral
Amount |
| 2002 |
$500 |
| 2003 |
$1,000 |
| 2004 |
$1,500 |
| 2005 |
$2,000 |
| 2006 |
$2,500 |
| Thereafter
increases for inflation in $500 increments. |
Similar to a Safe Harbor 401(k), the employer has two options
for required contribution:
- A matching contribution equal to 100% of the first 3% of an
employee's salary deferral; or
- A 2% non-elective contribution for all eligible employees.
A special rule permits employers to lower the match, but not
below 1%, in two out of every five years.
Eligible employees include any employee who earned at least
$5,000 during both of the preceding two years and is expected to
earn $5,000 in the current year.