We have written about this subject in the past (December 2023), but as is our philosophy here, learning is all about repetition, repetition, repetition. Surprisingly (he says with tongue firmly planted in cheek), not everyone reads every Slott Report entry. For some, this could be the first time they are hearing about these new SIMPLE plan contribution rules.
The basics: SIMPLE plans are available for companies with 100 or fewer employees who received at least $5,000 in pay from the company in the prior year. They were originally designed to be easier to administer than a 401(k), hence the name. SIMPLE plans allow for both employee and employer contributions, and those dollar amounts have always been clear. For example, the maximum SIMPLE annual salary deferral for 2024 is $16,000. For those who are age 50 or older, the 2024 catch-up contribution amount is $3,500.
Now enter the confusing parts.
SECURE 2.0 made some significant changes to the SIMPLE IRA plan contribution limits. For businesses with 25 or fewer employees, starting in 2024, both the “normal” salary deferral limit and the age-50-and-over catch-up limit are increased by 10% above the standard amounts listed in the preceding paragraph. This pushes the 2024 limits to $17,600 and $3,850, respectively.
What about businesses with 26 employees or more? These larger companies (26 – 100 employees) can elect the extra 10%, but only under two possible conditions:
So, while the SIMPLE contribution limits are reported as $16,000 and $3,500, there is a good chance that a significant number of employees can actually contribute more.
The next layer of confusion with SIMPLE plans is, of course…how do we determine how many employees the business actually has? IRS Notice 2024-02, released on December 20, 2023, explains how to determine the official employee headcount:
Bottom line: If you have any affiliation with a SIMPLE plan, be sure to recognize that the 2024 contribution limits have been increased by 10% for many (but not all) participants.
Specializing in private wealth management, we provide education, guidance, and strategies to help you achieve a tax-efficient retirement income.
Specializing in private wealth management, we provide education, guidance, and strategies to help you achieve a tax-efficient retirement income.
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