2018 SIMPLE IRA Contributions and Benefits

SIMPLE stands for “savings incentive match plan for employees,” and IRA stands for “individual retirement arrangement.” A SIMPLE IRA is simply a retirement savings account designed to allow small business owners and self-employed individuals to save for retirement. In a SIMPLE IRA, employees can contribute a portion of their salary to the account, and employers must choose one of two ways to make their matching contributions as follows:

• 1. Match employees’ contributions, up to a maximum of 3% of the employee’s compensation; or
• 2. Contribute a fixed rate of 2% of every employee’s compensation, regardless of whether they participate.

Employer and employee contributions are immediately fully vested, and money deposited into a SIMPLE IRA can be invested just like funds in a traditional IRA or 401K.

• Like a 401K, the funds contributed to the SIMPLE IRA are deferred income.
• Like an IRA, employees can invest for their retirement with virtually any stocks, bonds, or funds they choose.

In 2018, employees are allowed to contribute up to $12,500 to a SIMPLE IRA or 100% of their compensation, whichever is lower. If the employee is 50 years or older, there is an additional $3,000 catch-up contribution allowed.

If you are self-employed, you are considered to be both the employer and employee for contribution purposes.