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A Savings Incentive Match Plan for Employees IRA is another type of employer plan.  With a SIMPLE IRA, the employer matches up to 3% of compensation or 2% non elective and the contribution also grows tax deferred.  The contribution limits for 2020 for a SIMPLE IRA is $13,500 and also allows for a $3,000 “catch-up” for those over the age of 50. SIMPLE IRA distributions follow the same distribution rules as Traditional IRAs, with one significant difference. Early withdrawals generally are subject to a 10% additional tax if taken before age 59 1/2. However, the additional tax is increased to 25% if funds are withdrawn within 2 years of beginning participation in the plan. Distributions are taxed as ordinary income for the tax year of the distribution.

Check out this blog on Understanding Self-Directed Employer Plans and Which One is Right For My Business

SIMPLE IRAs also have a few deadlines:

  • Open Deadline: October 1st of current year
  • Employee Fund Deadline: Defer from last paycheck or December 31st
  • Employer Fund Deadline: Extended due date of the business tax return
  • SIMPLE IRAs must be open for two years before transfer outs are allowed

2020 Contribution Limits:

  • $13,500 (Before age 50)
  • $3,000 catch-up (Age 50+)