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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 However, the additional tax is increased to 25% if funds are withdrawn within 2 years of beginning participation in the plan.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.
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+)