Max SIMPLE IRA Contribution 2019: Limits, Rules, and Employer Match

2019 SIMPLE IRA Contribution Limits

For the 2019 tax year, the maximum employee salary deferral into a SIMPLE IRA was $13,000. Participants aged 50 or older could contribute an additional $3,000 as a catch-up contribution, bringing the total possible employee contribution to $16,000. These limits are set by the IRS and apply to both traditional and Roth SIMPLE IRA arrangements, though the Roth limit applies to the combined total of all Roth SIMPLE IRA contributions across employers.

Employer Contribution Requirements

Employers must make either a matching contribution or a nonelective contribution. The matching contribution is 100% of the first 3% of compensation the employee defers, though a special election can reduce this to 1% for up to two out of five years. Alternatively, the employer can make a nonelective contribution of 2% of each eligible employee's compensation, up to the annual compensation limit of $280,000 for 2019. The combined total of employee and employer contributions cannot exceed $13,000, or $16,000 with the catch-up, for the employee.

Comparison: Employee vs. Employer Contribution

Eligibility and Participation Rules

Employees generally must have earned at least $5,000 in compensation from the employer during any two preceding calendar years and be expected to earn $5,000 in the current year to be eligible. The employer can set a less restrictive eligibility rule but cannot make participation more restrictive than the IRS default. Self-employed individuals can also establish a SIMPLE IRA, but the contribution limits are calculated differently because of the dual role as both employer and employee.

Contribution Timing and Deadlines

Employer contributions must be made by the due date of the employer's federal income tax return, including extensions, for the year in which the contribution is made. Employee salary deferrals are generally subject to the same plan year limits, and contributions must be made as soon as administratively practicable after withholding. For a calendar year plan, this means contributions must be made by the employee's pay period, and employer contributions are due by the tax filing deadline including extensions.

Penalties for Excess Contributions

Excess contributions to a SIMPLE IRA are subject to a 6% excise tax per year for each year the excess remains in the account. Employers and employees both have a responsibility to track contributions carefully, especially when an individual has more than one SIMPLE IRA or has changed employers. Correcting excess contributions before the tax filing deadline can avoid the penalty, but the excess earnings must also be properly accounted for and distributed.

SIMPLE IRA vs. Other Retirement Plans in 2019

The SIMPLE IRA was designed for small employers with 100 or fewer employees who received $5,000 or more in compensation in the prior year. Compared to a 401(k), the SIMPLE IRA has lower contribution limits and simpler administration. The 2019 401(k) limit was $19,000 ($25,000 catch-up), significantly higher than the SIMPLE IRA's $13,000. However, SIMPLE IRAs carry a mandatory employer contribution requirement, which makes them more generous than a solo 401(k) for employees who want a guaranteed employer contribution.

Key Takeaways for 2019

• The 2019 SIMPLE IRA employee contribution limit was $13,000, or $16,000 with the catch-up.
• Employers must contribute via a 3% match or a 2% nonelective contribution.
• The combined employee and employer contribution cannot exceed the employee limit.
• Roth SIMPLE IRA contributions count toward the same combined elective deferral limit.
• Eligibility requires at least $5,000 in compensation in two of the last three years.
• Excess contributions face a 6% excise tax until corrected.