Simple IRA Contribution Limits

Figuring Out The Simple IRA Contribution Limits

With the Simple IRA, both employers and employees can make contributions up to a certain maximum amount each year. It is possible to go above these amounts in for those fifty and over who want to make catch-up contributions. When employers set up these plans, they can decide to make either a two percent non-elective contribution each year (meaning they give regardless of whether or not the employee contributes), or matching contributions up to three percent of the employee's salary. Employee contributions are made in the form of salary reduction contributions. 

The Simple IRA contribution limits for employees for 2010 are $11,500, except for those who are over fifty who can make catch-up contributions of an additional $2,500. The employer would then contribute an additional two to three percent of the employee's salary, up to the limits involved. 

There are circumstances in which employers can lessen the percentage that they contribute, but this can only happen for two out of every five years, and they can't lower their contribution to less than one percent. If they choose the two percent non-elective option this means that they will contribute even if the employee doesn't make a contribution of their own, which can be good for them if most employees choose to make contributions of more than two percent of their salaries. 

As you can see, it is possible to make higher contributions to your retirement account with a Simple IRA than it is with either Traditional or Roth IRAs since these only allow you to contribute $5,000 in 2010. It is important to keep this in mind when deciding which type of IRA you want to contribute to. If your employer offers you the option of a Simple IRA and you want to save these larger amounts it can be worthwhile to take advantage of the program, especially since the employer makes contributions as well.