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SIMPLE IRA for sole proprietor


Guest TrustMe401k
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Guest TrustMe401k

Is there any reason a sole proprietor cannot have a SIMPLE IRA plan? She is the only employee.

Assuming she can, and she defers the max $6000, does she still get the company match or is that considered part of the deferral?

There seems to be a large difference of opinion among CPA's I have spoken to. Any help would be greatly appreciated.

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It is my understanding that you can defer up to the lesser of your earned income or $6,000 and then also receive a match - I think the tricky part is calculating the compensation on which to base the match. I remember reading one place that you must subract the deferral before calculating the match for a self-employed but read somewhere else that you don't have to. I do know that, for people who earn less than $40,000, the SIMPLE can work out better.

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Guest Fishchick

Yes a sole proprietor can have a SIMPLE IRA. The compensation would be the net income from Schedule C * .9235. The employer match would be 3% of the compensation (or what the sole proprietor is deferring, if less.)

For example, the sole proprietor earns $30,000 on the Schedule C. Compensation is $27,705. The individual could defer $6,000. The employer match would be $831.15. The total contribution is $6,831.15. This entire amount is deducted on the 1040.

In a SEP IRA, the same individual could only contribute $3,636.59.

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[This message has been edited by Fishchick (edited 11-04-1999).]

[This message has been edited by Fishchick (edited 11-04-1999).]

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Guest TrustMe401k

Thank you. That's exactly what I wanted to hear. As in your example, this sole proprietor is better off with the SIMPLE due to her Schedule C income. Thank you for your help.

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