Simple IRA Contribution Limits

When planning for your retirement savings, you have a very wide variety of options to choose from like Roth IRA, 401(k), annuities and many more. One of the few employer sponsored retirement savings plans for employees is simple IRA. If you are a business owner, exploring employer sponsored retirement savings options or an employee who is doing the same, then you need to be aware of simple IRA contribution limits and rules. In the table below, you will find 2011 IRA contribution limits for this plan.

What is Simple IRA?

The 'simple' in simple IRA is actually 'Savings Incentive Match Plan for Employees' which explains the nature of this retirement savings scheme. It is a type of Individual Retirement Account (IRA) that is partially sponsored by an employer. It comes with many inherent tax advantages that are a feature of every IRA. Under this plan, the money invested in the IRA is not taxed, until its withdrawn after retirement. Under a simple IRA plan, an employer and employee jointly contribute to the savings account. The sharing deal in simple IRA for employers and employees is the following.

The employer must match the amount of money contributed by an employee (up to 3% of earning salary) to the IRA. The joint contribution limits are set by the Internal Revenue Service (IRS), which cannot be exceeded. Simple IRA is ideal for small businesses with less than 100 employees. The best thing about this plan is the relative ease with which it can be set up with very few formalities. It also costs you a lot lesser in terms of administrative costs and is quite convenient for employees, as the contributions are directly deducted from their salaries. The contribution limits are relatively low compared to other savings plans.

Simple IRA Rules

One of the primary simple IRA rules is that you as an employer can opt for it, only if he has an employee strength lesser than or equal to 100. These hundred employees must have earned at least $5000 in the previous year through compensation. To establish a simple IRA plan, either the form 5305-SIMPLE must be filled (if employer decides financial institution for payment) or form 5304-SIMPLE (if financial institution is chosen by an employee). The employee must be informed in entirety about terms and conditions, as well as details of a simple IRA. Arrangements need to be made for opening up of IRAs for every employee. If you are opening one for the first time, a simple IRA plan can be set up anytime between first of January and first of October. For more details, visit the IRS website.

Simple IRA Contribution Limits (2011)

After that brief overview of rules related to this savings scheme, here are the simple IRA contribution limits for the year 2011. For completeness, I have also provided the limits on simple IRA contributions for previous years. A table of IRA contribution limits is presented below.

Year	Simple IRA Contribution Limit (Below Age of 50 Years) in USD	Simple IRA Contribution Limit (Over Age of 50 Years) in USD
2005	$10,000	$12,000
2006	$10,000	$12,500
2007	$10,500	$13,000
2008	$10,500	$13,000
2009	$11,500	$14,000
2010	$11,500	$14,000
2011	$11,500	$14,000

The maximum simple IRA contribution limits may change every year. The decision lies with the IRS which declares the revised rates during the beginning of every financial year. As you can see, the limits have been steadily increasing over the years and promise a substantial contribution to an employee's retirement savings.

Knowing contribution limits can help you in your retirement planning and overall yearly savings budget allocation. It is one of the many financial tools created to promote the habit of saving in working professionals, which can secure their future, post retirement. For more detailed information about simple IRA, refer to the IRS website.