Simple IRA Contribution Limits For 2023
The Simple IRA or Savings Incentive Match Plan for Employees is a retirement savings plan available to small employers. It's similar to a 401(k) in that it allows employees to contribute to their retirement savings, and employers can add to those contributions as well. The contribution limits for Simple IRAs in 2023 are increasing, offering both employers and employees the opportunity to save more for retirement.
Employer Contributions
Employers can contribute up to 3 percent of each employee's annual salary to their Simple IRA. This amount is limited to $13,500 per employee in 2023. If an employer offers a matching contribution, the employer can contribute up to a maximum of $8,000 in 2023. Combined, the employer and employee contributions cannot exceed $13,500.
Employee Contributions
Employees are allowed to contribute up to $13,500 to their Simple IRA in 2023. Employees aged 50 and over can also make catch-up contributions of up to $3,000. This amount is in addition to the regular annual contribution limit. Combined employee and employer contributions cannot exceed $13,500.
Income Limits
Income limits come into play when contributing to a Simple IRA. Employees must have earned income in order to contribute. The maximum income limit for 2023 is $129,000. This means that an employee must have earned at least $129,000 in 2023 in order to contribute to a Simple IRA. If an employee earns more than $129,000, they are not eligible to contribute to a Simple IRA.
Tax Benefits
One of the main benefits of contributing to a Simple IRA is the tax benefits. Contributions to a Simple IRA are tax-deductible, meaning that contributions are subtracted from an employee's taxable income. This reduces the amount of taxes an employee will owe. Any income earned from a Simple IRA is also tax-deferred, meaning that taxes are not due until the money is withdrawn from the account.
Catch-Up Contributions
Employees aged 50 and over are eligible to make catch-up contributions of up to $3,000 to their Simple IRA in 2023. This amount is in addition to the regular annual contribution limit of $13,500. Catch-up contributions are allowed regardless of income level, allowing employees to save more for retirement.
Rollover Contributions
Employees can also make rollover contributions to their Simple IRA. A rollover contribution is when money is transferred from another retirement account, such as a 401(k) or traditional IRA, into a Simple IRA. Employees can rollover up to $13,500 in 2023. This amount is in addition to regular contributions. Rollover contributions are not subject to income limits.
Withdrawal Rules
Any money withdrawn from a Simple IRA before the age of 59 and a half will be subject to a 10 percent penalty. This penalty does not apply to withdrawals that are used for certain qualified expenses, such as medical expenses, the purchase of a first home, or higher education expenses. Early withdrawals are also subject to income taxes.
Conclusion
The Simple IRA is a great retirement savings plan for both employers and employees. The contribution limits for 2023 are increasing, offering both employers and employees the opportunity to save more for retirement. Employers can contribute up to 3 percent of each employee's salary, while employees can contribute up to $13,500. Employees aged 50 and over can also make catch-up contributions of up to $3,000. Contributions to a Simple IRA are tax-deductible and the income earned from the account is tax-deferred. Any money withdrawn from a Simple IRA before the age of 59 and a half will be subject to a 10 percent penalty.