Jump to content

Simple IRA Eligible Compensation in first year

Recommended Posts

We don't work with these but a referring advisor is asking - they have a client who started a simple IRA July 1.  The payroll company says compensation for the full year is counted.  So that if the person contributes 6% from July through Dec they will end up at 3% deferral for the full year and get 3% match on their full year pay rather than 3% on their pay from July through Dec.    I figured the reason the IRS imposed the Oct 1 set-up deadline was to make sure employees got the 3% match for at least 3 months since the owner could make the max deferral within those three months.   The payroll company disagrees with that apparently.


Comments?  Thank you.


Link to comment
Share on other sites

Tom, the IRS's position is full year, based on the reference in 408(p)(6)(A) to, essentially, W-2 comp. Also, see the use of term "year" in 408(p)(2)(A). I believe the purpose of the October 1 deadline is merely to give folks a chance to budget whatever contributions they can make over the remainder of year.

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

Link to comment
Share on other sites

Looked up SIMPLE documents furnished by IRS and they say "calendar year" in every reference to contributions.  IRS.gov...5304 - SIMPLE.

Patricia Neal Jensen, JD

Vice President and Nonprofit Practice Leader

|Future Plan, an Ascensus Company

21031 Ventura Blvd., 12th Floor

Woodland Hills, CA 91364

E patricia.jensen@futureplan.com

P 949-325-6727

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
  • Create New...