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No section 415(c) limitation for a SIMPLE Plan? Can a sole proprietor


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If this question has been answered on an earlier thread please lead me to it.

A Merrill Lynch "1999 Pension Plan Comparison Chart" describes a SIMPLE Plan as being similar to a 401k but not limited to 15% or 25% of compensation.

Is there no Sec 415© limitation with a SIMPLE Plan?

Could a sole proprietor with no employees contribute 100% of SE income (up to $6,000) plus a 3% match? I've looked everywhere I can think of and can't find an answer.

Mary Kay Foss CPA

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The 25% Section 415 individual limit does not apply to SIMPLE IRAs, but does apply to SIMPLE 401(k) plans. See Revenue Procedure 97-9, §2.06: "Except as provided in Section 2.02, all other qualification requirements of the Code continue to apply to a plan that contains 401(k) SIMPLE provisions including the contribution limitations of §415."

However, the 404(a) deductible limits of 15% for profit-sharing plans and 25% for paired plans do not apply to either SIMPLE IRAs or SIMPLE 401(k) plans.

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Guest Paul Leslie

To answer your question yes a self employeed person can put in $6,000 plus the 3% matching in a Simple IRA. A sole propreitor has one employee who is limited to $6,000 (himself). The employer has to do the 3% matching option elected in the plan. The matching portion of Simple IRA is limited at $120,000 of income because 120,000 x 3% would equal 6,000. The most the employer can match under the 3% option is what the participant contributed.

No it is not subject to the 415 limit. In my opinion, I think Merril Lynch was making a real big generalization that they were similar.

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  • 4 weeks later...

If a self-employed individual earns exactly $6,000, IMO the elective portion and the match/nonelective can not exceed $6,000 (recharacterization). Thus, the elective portion is limited to $5,825.24 ($6k/1.03)in the case of a 3% match ($174.75). The 2001 limit is $6,500.

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