Contributing to a company-sponsored retirement plan is one of the best ways to prepare for retirement. A common type of retirement plan for small employers is the Savings Incentive Match Plan for Employees (SIMPLE) IRA. Both employers and employees can make contributions to the plan. You might be wondering if you can have two SIMPLE IRA plans to boost your savings even more.
Basics of SIMPLE IRAs
SIMPLE IRAs are meant for small employers with 100 or fewer employees. Employers that choose this plan can't offer alternative retirement plans such as 401(k)s. These plans typically require employee participants to either have an expected salary of $5,000 for the year or show a history of earning $5,000 for two past calendar years. However, employers can choose to be more lenient with these amounts.
As an employee with a SIMPLE IRA, you can contribute up to $13,500 in 2021 (up to $14,000 for 2022), plus an additional $3,000 if you're at least 50 years old. Employers must choose to offer either a three percent match for employee contributions or contribute two percent of your salary (whether you contribute or not) up to an maximum salary amount ($290,000 in 2021 and $305,000 in 2022). Unlike with a traditional 401(k), all your SIMPLE IRA funds vest immediately.
While your money grows in your SIMPLE IRA, you benefit from tax deferment. This means you won't pay taxes until you withdraw from the account. But unless you wait until age 59 1/2 to withdraw funds or get a hardship exemption, you can face a 10 or 25 percent tax penalty for early withdrawals on top of the usual taxes owed. In addition, you must take required minimum withdrawals starting at age 72.
Consider also: Differences Between IRA & Non-IRA Accounts
Recent Changes for SIMPLE IRAs
If you are thinking of starting a SIMPLE IRA, you need to be aware that some recent changes. In December 2019, the Setting Every Community Up for Retirement Enhancement (SECURE) Act got rid of the maximum age for making contributions; previously, it was 70 1/2 years old. Now, you can contribute for the as long as you're an eligible employee.
Are Two SIMPLE IRAs Possible?
Since a single employer can only offer you one SIMPLE IRA plan, the only way to have two would be to work for two employers where you qualify for the plan. In that case, the total amount you can contribute each year to the accounts would depend on whether or not the companies somehow are related to each other.
If your employers have some relationship, the original $13,500 limit (plus $3,000 catch-up amount if applicable) for 2021 would apply to employee contributions to both SIMPLE plans combined. In that case, you might decide to contribute $6,750 to each account if you're under 50.
When your two employers have no relationship, you can contribute up to $19,500 ($26,000 if you're at least 50) in 2021 combined to your SIMPLE IRAs. However, you can't go beyond the per-account contribution limit in the process.
Consider Other IRA Options
Even if you can only contribute to one SIMPLE IRA, you can always consider getting an additional traditional or Roth IRA on your own through a brokerage. These accounts require earned income such as wages, a salary or self-employment income. You cannot contribute to them if your only income is unemployment, disability or other forms of support.
You can establish a Roth IRA as long as you meet the income requirements. This option is a popular choice as your withdrawals are tax-free as long as you are over 59 ½ and you had the account for more than five years. On the other hand, traditional IRAs don't have any income restrictions for qualifying to contribute. With this account, you can deduct the taxes when you are making contributions, but your payments will be taxed when you begin collecting payments.
For 2021 and 2022, the maximum you can contribute is $6,000 ($7,000 if at least 50) to all traditional and Roth IRAs combined. For instance, if you're under 50 and have both a Roth IRA and traditional IRA, you might contribute $3,000 to each of them.
Consider also: Is There a Maximum Amount Allowed to Open an IRA?
- IRS: SIMPLE IRA Plan
- Congress.gov: H.R.1994 - Setting Every Community Up for Retirement Enhancement Act of 2019
- IRS: Retirement Topics - SIMPLE IRA Contribution Limits
- IRS: SIMPLE IRA Withdrawal and Transfer Rules
- IRS: How Much Salary Can You Defer if You’re Eligible for More than One Retirement Plan?
- IRS: IRA FAQs
Adam Luehrs is a writer during the day and a voracious reader at night. He focuses mostly on finance writing and has a passion for real estate, credit card deals, and investing.