How are SIMPLE IRA contributions treated for federal income tax purposes?
A. All SIMPLE IRA contributions are tax deductible for the employers. In addition, contributions to a SIMPLE IRA account are excluded from an employee’s income for federal income tax purposes in the year contributed, and the assets of a SIMPLE IRA account grow on a tax-deferred basis. The employee’s pre-tax contributions are included in income for Social Security (both retirement and Medicare benefits) and unemployment taxes, if applicable. Thus, participation in a SIMPLE IRA plan will not reduce an employee’s Social Security benefits.
