May an employer make nonelective contributions instead of matching contributions?
As an alternative to making matching contributions under a SIMPLE IRA plan, an employer may make nonelective contributions equal to 2 percent of each eligible employee’s compensation for the entire calendar year. The employer’s nonelective contributions must be made for each eligible employee regardless of whether the employee elects to make salary reduction contributions for the calendar year. The employer may, but is not required to, limit nonelective contributions to eligible employees who have at least $5,000 (or some lower amount selected by the employer) of compensation for the year. For purposes of the 2-percent nonelective contribution, the compensation taken into account must be limited to the amount of compensation that may be taken into account under section 401(a)(17) for the year. The section 401(a)(17) limit for 2008 is $230,000 ($245,000 for 2009). This amount will be adjusted by the Service for subsequent years to reflect changes in the cost-of-living .
As an alternative to making matching contributions under a SIMPLE IRA plan, an employer may make nonelective contributions equal to 2 percent of each eligible employee’s compensation for the entire calendar year. The employer’s nonelective contributions must be made for each eligible employee regardless of whether the employee elects to make salary reduction contributions for the calendar year. The employer may, but is not required to, limit nonelective contributions to eligible employees who have at least $5,000 (or some lower amount selected by the employer) of compensation for the year. For purposes of the 2-percent nonelective contribution, the compensation taken into account must be limited to the amount of compensation that may be taken into account under section 401(a)(17) for the year. The section 401(a)(17) limit for 2007 is $225,000 ($230,000 for 2008). This amount will be adjusted by the Service for subsequent years to reflect changes in the cost-of-living .
