Friday, August 3, 2012

WATCH SIMPLE CONTRIBUTIONS FOR EMPLOYEES WITH ANNUAL SALARY


Every time I think that I have a good grasp on the tax law I read something that humbles me. Recently I read a article on SIMPLE IRA plans which surprised me.Matches must be based on a participant’s annual salary, according to IRS, even if the employee joins or leaves the plan in midyear.

For example if a worker with a salary of $60,000 joins the plan on Oct. 1 and contributes $2,000 for the rest of the year,the plan’s matching payin is $1,800...3% of $60,000 (most SIMPLES have a 3% match).The matching contribution isn’t based on the $15,000 the employee was actually paid. If the worker in this example only put in $1,500, the match would fall to $1,500.

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