Simple IRA Contribution Limits – How Are They Determined?
How are SIMPLE IRA contribution limits determined? Do employers set these limits, or do the annual numbers come from another source? A SIMPLE IRA is a retirement plan, and the SIMPLE stands for Savings Incentive Match Plan for Employees. These plans have an annual contribution limit for both the employee and the employer, which has been set at $11,500 for both 2010 and 2011. The SIMPLE IRA contribution limits are set by the Internal Revenue Service in the United States, and this can be done either yearly or once every two years. The last time the limit was set it was done for a two year period covering both 2010 and 2011.
401k contribution limits are higher than those allowed under a SIMPLE individual retirement account. This is the reason that many have started a 401k plan, but for others the SIMPLE IRA contribution limits are sufficient. There is also a limit on a total maximum amount contributed to all plans if you have more than one, with this cap being $16,500. These limits also affect any spousal IRA that you may contribute to, with a specific formula being used to determine the total you can contribute to your spouse’s retirement account.
The SIMPLE IRA contribution limits change on an annual or bi-annual basis. The IRS determines what these limits should be and how long they will be in effect for. The catch up contributions allowed are also set at this time. A traditional IRA rollover or a change from a 401k to an IRA may impact the contribution limits for the specific year though. Before making any changes or setting up a retirement account you should speak with a financial advisor. This will allow you to make the best choice for your retirement funds. Understanding how each plan type works and which one offers the best benefits can help you achieve a larger account balance by the time you retire.