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Simple IRA Eligible Compensation in first year


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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.

 

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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

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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

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