Employers that offer retirement plans can choose from several alternatives. A 401(k) allows employers and employees to make pre-tax contributions. The same is true for Savings Incentive Match Plan for Employees individual retirement account plans, often referred to as SIMPLE IRAs, but employers can’t adopt this type of plan if the company has more than 100 employees. Both plan types have contribution limits. As an employee, you might be in a position to contribute to both plans in the same year, but you must observe the joint contribution limits.
Two Plans, One Year
It might be unusual to belong to a 401(k) and a SIMPLE IRA in the same year. Employers can’t offer both at the same time, although they can make separate arrangements for employees covered by a collective bargaining agreement. Nonetheless, as an employee, you might be able to contribute to both plan types in one year if you change employers. Alternatively, your employer might replace one plan with the other during the year. A third possibility is that you work for two unrelated employers at the same time. If you belong to both types of plan in the same year, your total contributions can’t exceed the Internal Revenue Service limits on 401(k) plans.
401(k) Contribution Limits
As of 2014, the IRS limits employee pre-tax 401(k) contributions to $17,500 per year. The plan might allow you to make an additional, catch-up contributions of $5,500 if you’re age 50 or older, raising your annual contribution limit to $23,000. Your employer also can kick in pre-tax contributions to your account. The sum of your and your employer’s contributions can’t exceed 100 percent of your compensation or $52,000, whichever is less. If you’re age 50 or older, the limit is $57,500. If your employer contributes a set percentage of your compensation to your 401(k), it can only count the first $260,000 when figuring the amount.
Read More: 401k Plan Contribution Limits
SIMPLE IRA Contribution Limits
The IRS limit as of 2014 for employee contributions to a SIMPLE IRA is $12,000. That limit rises to $14,500 once you reach age 50. Employers have a few alternatives when figuring their contributions, but generally, the amount is between 1 and 3 percent of your contributions or 2 percent of the first $260,000 of your annual compensation. While some 401(k) plans allow employees to make nondeductible contributions, SIMPLE IRAs don’t permit this option.
Joint Contribution Limits
If you belong to a 401(k) and a SIMPLE IRA in the same year, your contributions to either plan count toward the overall limit of $17,500, or $23,000 if you've reached age 50. For example, if you contribute $12,000 in 2014 to your SIMPLE account, the most you can kick into your 401(k) is $5,500 or $11,000, depending on your age. Some employer plans prohibit catch-up contributions. Nonetheless, you can make joint contributions that include the catch-up limits. For example, suppose you contribute $17,500 to a 401(k) that doesn't permit catch-up contributions. If you've reached age 50, you can contribute up to $5,500 to your SIMPLE IRA to bring your total annual contributions to $23,000.
- IRS.gov: Publication 560 Retirement Plans for Small Business
- IRS.gov: Retirement Topics - 401(k) and Profit-Sharing Plan Contribution Limits
- IRS.gov: Retirement Topics - SIMPLE IRA Contribution Limits
- IRS. "Income Ranges for Determining IRA Eligibility Change for 2021." Accessed Nov. 5, 2020.
- IRS. "IRC 457(b) Deferred Compensation Plans." Accessed Nov. 5, 2020.
- IRS. "Government Retirement Plans Toolkit." Accessed Nov. 5, 2020.
- IRS. "Comparison of Governmental 457(b) Plans and 401(k) Plans: Features and Corrections." Accessed Nov. 5, 2020.
- IRS. "Topic No. 558 Additional Tax on Early Distributions From Retirement Plans Other Than IRAs." Accessed Nov. 5, 2020.
- IRS. "Retirement Topics - 457(b) Contribution Limits." Accessed Nov. 5, 2020.
- Congress.gov. "Small Business Jobs Act of 2010," Page 63. Accessed Nov. 5, 2020.
- IRS. "Deadline Extended to Add New In-Plan Roth Rollover Provisions." Accessed Nov. 5, 2020.
- IRS. "Retirement Plans FAQs on Designated Roth Accounts." Accessed Nov. 5, 2020.
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