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SIMPLE IRA QuestionsForum overview » All things SIMPLE » SIMPLE IRA Questions 
 
 brent
Posted 2007-02-16 09:25:44 This is where you can post your SIMPLE IRA questions.
macreative
Posted 2007-03-02 09:05:18 I am a single participant, sole proprietor of my part-time freelance design, and also over the age of 50. In 2006 my income from my business was low, so I want to contribute 100% of my net to my 2006 SIMPLE IRA. After adjusting for 50% of employment tax and adding a 3% employer (myself) contribution, the amount is just over $1000. Can I add the $2500 catch-up contribution on top of that or am I not allowed to exceed my net earnings?
brent
Posted 2007-03-02 09:42:15 Thanks for your question. I see this allot, often people running companies are busy running the company they own and are not familiar with all the retirement account options. Since your a single participant you could possible qualify for a SOLO 401k. A SOLO 401k would allow you to contribute at a much higher level. You possible have much more contribution firepower but since, you mentioned your part time, do you have other employment and or retirement plans, and could I get your income. Thanks
macreative
Posted 2007-03-02 14:15:42 I already have the SIMPLE IRA plan set up since last year when I was freelancing full time, so am not looking to switch or begin a new plan, though may consider the SOLO 401k option when I will be past the two-year limitation for rolling over my SIMPLE. I have a full-time job presently and participate in my employers plan and contribute to a personal IRA. My net income for my business on Schedule C for 2006 was only $1,126. I figured my base contribution to be: $1126 x .9235 (50% employment tax) = $1039.86 + $31.20 (3% of compensation employer matching) totaling $1071.06. I need to know if I am allowed to add the over-50 catchup amount of $2500 on top of that for a grand total of $3571 to put on line 28 of my 1040. Or is it disallowed because it would exceed my net? Thanks
brent
Posted 2007-03-05 10:39:25 Thanks for the post I have some bad news for you. 1. On the catch-up you can't contribute more than your earn. 2. You need to see an professional I could identify one. The Simple IRA is designed to be the only retirement program that a company could sponsor. Since your already in a primary retirement account you could set up a secondary retirement account with a SEP IRA. But I believe you don't qualify for a SIMPLE IRA or even a SOLO 401k. I sorry to bring possibly bad news, I hope you have a great retirement.
macreative
Posted 2007-03-05 12:23:26 I guess I need a little clarification on you last answer. First more background: I set up a SIMPLE IRA through a financial institution for 2005 tax year when I was freelancing full time and my net was over $5000. In the 2006 tax year, I moved to another state and began employment with another company but also earn income through my own business. Although my net income was under $5000 for 06, this year it will again be over $5000. Am I not still allowed to contribute to my existing SIMPLE for 2006 and keep the plan going even though I contribute to another employer's plan and netted under $5000 in 2005? Thanks much for your help!
brent
Posted 2007-03-05 12:40:53 Thanks for the additional input. Your 2005 contribution is fine, and you could keep the SIMPLE IRA plan going, but for 2006 you need to open a SEP IRA and you have until you send your taxes to contribute. You could have both the 2005 Simple and 2006 SEP accounts. You need to document that the 2005 SIMPLE IRA was not applicable due to the change in business. I hope this helps.
macreative
Posted 2007-03-05 13:36:52 Sorry, I'm still trying to understand the reasoning behind your comments so I can explore all options. Is the problem due to not netting at least $5000 or the fact I am contributing to another employer's plan? My understanding was that SIMPLE could be the only plan offered by my company not that I couldn't contribute to another company's plan. Or are there other reasons behind your comments? When you say i "need" to open up a SEP, surely you don't mean that it is mandatory. I don't think the few hundred dollars the SEP plan allows is worth starting it up. If the only problem is that I did not net $5000, wouldn't a better strategy be to reduce my business expenses and deductions so my net reaches $5000 (I grossed close to $8000), then contribute the maximum so I am paying no taxes on my business income? Why would I not be allowed to contribute for 2007 if I net over $5000? Still hanging in there and grateful for your input...
brent
Posted 2007-03-05 18:17:06 I understand your frustration, you quoted "I am contributing to another employer's plan?" "SIMPLE IRA plan: Retirement Rules & Guidelines... Employer Disadvantages.... * An eligible employer is not allowed to maintain another retirement plan in addition to or in conjunction with a SIMPLE IRA plan in the same plan year." http://www.retirement-retirement.com/page.php?id=7 I enclosed the quote and link that is the issue. The SEP IRA is only a alternative I recommended. Sorry to be deflating. I hope all works out well!
macreative
Posted 2007-03-06 07:26:11 Thanks for your clarification. I had read that statement to mean, as an empoyer I could not set up and maintain two different retirement plans for my business. I did not realize it meant I could not contribute, as an employee, to another plan that was set up and maintained by another employer. Thanks again
brent
Posted 2007-03-06 09:23:14 Thanks for your update. Yes, you are the owner of the business, and you the owner have a "conjunctive" plan inside a SIMPLE IRA. You could still fund A SEP IRA. It allows for part time owners to fund a second retirement account. I hope it works out for you.
donaquick
Posted 2008-01-23 10:46:34 I have a question concerning the company match portion of a Simple IRA. Employee is making monthly contributions and then stops contributions for a couple of months. After a few months starts back up with the monthly contributions. The company does a 3% match. The employee made $7500 total contributions for 2007. Employee total salary for 2007 is 97,558.49. Is the company required to do 3% match during the months the employee is not contributing?
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