How Does a Matching SIRA Deposit Work?
Contributions to a SIRA, or a SIMPLE IRA account, can be made in one of two ways. First, the contribution can be made from the employee or individual's side through a reduction or withholding from each paycheck. Second, contributions can be made by the individual's employer, either through matching contributions or non-elective contributions. The "SIMPLE" in the name stands for Savings Incentive Match Plan for Employees.
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Simple IRA Eligibility
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SIMPLE IRA plans can be established only by employers with less than 100 employees who earned $5,000 or more in compensation during the preceding calendar year. For purposes of the 100-employee limitation, any worker who was employed at any time during the calendar year is taken into consideration for determining plan eligibility, regardless of whether they are eligible to participate in the SIMPLE IRA plan. Companies with more than 100 eligible employees cannot implement a SIMPLE IRA plan for their workers.
Employee Election
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Each employee can choose the percentage of salary they want to contribute toward a SIMPLE IRA plan. The maximum amount is $11,500 for 2011. However, if an employee made less than $5,000 in total compensation from the employer, he does not need to be included in the employer's SIMPLE IRA plan. Employers should inform workers of their eligibility to participate within 60 days of the beginning of their employment.
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Employer Contributions
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Under the terms of a SIMPLE IRA, an employer must match the employee's salary contributions on a dollar-for-dollar basis, up to a maximum of 3 percent of the employee's compensation. An employer can also opt to make non-elective contributions, so that the employee receives the benefit whether she chooses to make her own contributions or not.
Employers can contribute a maximum of $11,500 or 3 percent of an employee's salary to an employee's SIMPLE IRA for 2011, regardless of the amount of the employee's contribution.
Rules for Matching Deposits
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Any matching contributions for employees must be made within 30 days after the end of the month in which the amounts would otherwise have been payable to the worker. This is the case regardless of when during the month the employee would have made the contribution to his account. To maintain eligibility for the SIMPLE IRA plan -- and the tax benefits of such a plan -- the contributions must be received by the financial institution in charge of the SIMPLE IRA plan. Failure to make these contributions can result in fines and penalties for the employer.
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References
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