Impose Service Requirement on SIMPLE IRA?

[Stephanie M.]

In the past, we have allowed employees to start contributing to our SIMPLE IRA as soon as they (1) completed 12 months of continuous service; (2) earned $5,000 in that 12 month period; and (3) were reasonably expected to earn $5,000 in the next 12 month period. As a result, employees were entering the plan at all dates during the year based on their hire date. I don't think this is correct. It appears that SIMPLE IRAs all have a January 1 entry date and only compensation can be used to determine eligibility.  For example, an employee hired in August 2024 could enter the plan January 1 2025 as long as they earned $5,000 in 2024 and are reasonably expected to earn $5,000 in 2025. Is that correct? Thank you!

[Belgarath]

Agreed. But depending upon which selection you make in Article 1 a or b, it could be immediate, 1 prior year, or 2 prior years for eligibility. Again, you are correct that it is based upon compensation, not hours.

[Stephanie M.]

3 hours ago, Belgarath said:

Agreed. But depending upon which selection you make in Article 1 a or b, it could be immediate, 1 prior year, or 2 prior years for eligibility. Again, you are correct that it is based upon compensation, not hours.

Thank you!

[Stephanie M.]

3 minutes ago, Stephanie M. said:

Thank you!

Can I ask one clarifying question ... using the example above with an employee hired in August 2024 ... if they DON'T earn $5,000 in 2024, their next possible window (depending on our Article 1 election) is January 1, 2026. Is that correct?

[Belgarath]

Yup.

[Bruce1]

Can anyone confirm for me. If in Article1, 1b (ii) employees with at least $5,000 in compensation during any 2 calendar years preceding the calendar year is selected. 

This means that to determine eligibility as of January 1, 2025, you would look back at 2023 and 2024, and any employee who earned $5,000 or more in either of those years would qualify to participate in the plan beginning January 1, 2025. Of course you'd look at current compensation for calendar year 2025 as well.. 

It seems to me like there is no two year wait period because in Article1, 1b (ii) it says "during any 2 calendar years preceding". It doesn't say you must have $5,000's in compensation during both 2 calendar years preceding.