October 13, 2012

SIMPLE IRA Employee Notification

An employee must be given the right to enter into an agreement to make salary deferral contributions to his employer’s SIMPLE IRA Plan, or to change an existing salary deferral agreement during the 60-day period immediately preceding January 1 of a calendar year, that is November 2 to December 31 of the preceding calendar year. When making modifications to an existing salary deferral agreement, the employee can either reduce the amount- including reducing the amount to zero, or increase the amount. This 60-day period generally applies to a SIMPLE IRA that is already in existence and is being continued for the next year, but can apply to one that is being established during the current year for the next year.
For a SIMPLE IRA that is being establish in the current year for the current year, the 60-day period includes either the date the employee becomes eligible or the day before that date.
Example:
Company B establishes a SIMPLE IRA Plan effective as of July 1, 2012. Each eligible employee becomes eligible to make salary deferral contributions on July 1, 2012. The e 60-day period must begin no later than May 2, 2012 and cannot end before July 1, 2012.
It is possible that the employer began discussions about the plan on July 1, and therefore would not have been able to provide the notice to the employees before then. In such a case, if the employer provides the summary description to the employees on July 1 and the 60-day period would begin on July 2 and end September 1.
During a year when an employee becomes eligible to participate in the SIMPLE IRA Plan, he must be allowed to start making salary deferral contributions to the plan upon becoming eligible, even if the 60-day period has already ended.

Written By

Retirement Dictionary Staff

Frequently Asked Questions Regarding

No. The option to defer starting your required minimum distribution (RMD) past age 72 until you retire only applies to the amounts that are held with the company that you currently work for.
For the amounts that are held with companies for which you are no longer an employee, your RMD amounts must be taken every year. If your current employer’s plans you to defer starting your RMDs until you retire and it allows rollovers from other plans, you can rollover your balances from those plans from your former employers into the plan held with your current employer. This would allow you to defer your starting your RMDs until you retire. If you are rolling over amounts from amounts held with your former employers, you must take the RMD due for the year before completing the rollover.
Note: The Option to defer RMDs past age 72 does not apply to IRAs, including SEP and SIMPLE IRAs.

Answer provided by “https://www.linkedin.com/in/deniseappleby” Denise Appleby, CISP, CRC, CRPS, CRSP, APA

Answer

Even though you participated in the plan for only one month, you are still considered an active participant for the year. Bear in mind, however, that you may still be eligible to claim a deduction (or partial deduction) for your IRA contribution, if your https://www.retirementdictionary.com/definitions/modifiedadjustedgrossincomemagi Modified Adjusted Gross Income (MAGI) is within the limits stated here https://www.retirementdictionary.com/definitions/activeparticipant

If you are not eligible to claim a tax-deduction for your contribution, you can either:

• Make a https://www.retirementdictionary.com/definitions/nondeductiblecontribution nondeductible contribution to your traditional IRA,
• Split your contribution between your traditional IRA and your https://www.retirementdictionary.com/definitions/rothira Roth IRA (your total contribution cannot exceed the limit in effect for the year. Click https://www.retirementdictionary.com/definitions/ira here for the limit in effect for this year)
• Make your contribution to a Roth IRA, if you are eligible. For Roth IRAs, your Modified Adjusted Gross Income (MAGI) would need to be within the limits stated here https://www.retirementdictionary.com/definitions/rothira

For more on this, please see the article https://www.retirementdictionary.com/articles/29/active-participant-statusâcan-you-deduct-your-ira-contribution Active Participant Status–Can You Deduct Your IRA Contribution?

Answer

Many small business owners and https://www.retirementdictionary.com/definitions/participant plan participants who either sponsor or participate in https://www.retirementdictionary.com/definitions/simplifiedemployeepensionsepira SEP or https://www.retirementdictionary.com/definitions/simpleira SIMPLE IRA plans question whether or not contributions can be made to these plans after the owner or participant reaches age https://www.retirementdictionary.com/definitions/70andhalfage 72. The answer is yes. In fact, participants turning 72 must be allowed to continue participating. This means that participants must continue to share in employer contributions and, in the case of SIMPLE IRA plans, must be allowed to continue to make salary reduction contributions. The contributions to both SEP and SIMPLE IRA plans are made to IRAs https://www.retirementdictionary.com/definitions/traditionalira traditional IRAs in the case of SEPs. Note that individuals age 72 or older are not permitted to make the regular, annual contributions ($5,000 for 2011 or $6,000 if age 50 or older) to traditional IRAs, whether or not the IRA is part of a SEP plan. (See Code §219.)

Keep in mind that individuals are still required to take RMDs from these accounts, since all IRA owners must start taking RMDs once they have attained age 72.

http://www.irs.gov/pub/irs-pdf/p560.pdf Pub 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans)

http://www.irs.gov/pub/irs-pdf/p590.pdf Pub 590, Individual Retirement Arrangements (IRAs)

*******This Q&A was taken from the IRS’s Summer 2008 Employee Plan Newsletter ******Update to make current with limits

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