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austin3515

SIMPLE IRA / Excluding 125 Contributions

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Reading through the new publication 560 just released and I'm struck by how they seem to go out of their not to call attention to the fact that Section 125 premiums reduce eligible compensation.

It seems the only reference to this rule is that when it describes those pre-tax contributions that do not reduce compensation, 125 deductions are not listed.

And of course it's stupid that your EMployer should be rewarded for making you pay more for health insurance premiums, or that you should be penalized for being older because your deductions are increased as premiums increase.

Does the IRS not want me to follow this rule?  It seems if they did they would say "hey, watch out - 125 deductions reduce comp!"

 

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I've seen a whole bunch of SIMPLE's that were operated incorrectly due to this, and I agree that it is very poorly communicated. And yes, I agree that it is stupid. A landmine for any "average" client who thinks a "SIMPLE" plan is actually "simple."

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