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SIMPLE - is the contribution based on correct compensation


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Not a SIMPLE person, asking for a friend:

"My employer started a SIMPLE IRA plan for all employees in April of 2022 with the required 3% match. I contributed the maximum of $14,000 over the course of the remainder of the year. My salary is $200,000 per year, so I believe that the 3% should be based on my compensation over the whole year totaling $6,000. My employer’s accounting firm only deposited $4,500 as the employer match instead of the $6,000 that would equal 3% of my yearly salary and says that they only owe me 3/4 of the total 3% because the plan only existed for 3/4 of the year. This does not seem to correlate to the IRS language regarding SIMPLE IRAs, which states that the percentage is based on the employees’ compensation for the “entire year”, although I cannot find anywhere that says that this language applies even to plans started mid year. What is the correct interpretation?"

Any comments/suggestions are appreciated.

Thank you.

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The IRS Simple Plan FAQs indicate compensation is used for the entire year:

"As an alternative to making matching contributions under a SIMPLE IRA plan, you may make nonelective contributions equal to 2 percent of each eligible employee's compensation for the entire calendar year."

https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-simple-ira-plans#compensation

 

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