Tax Facts

3709 / How are SIMPLE IRA plan contributions taxed?

There are four permissible types of contributions to a SIMPLE IRA plan:

(1)   Salary reduction contributions

(2)   Catch-up contributions

(3)   Matching contributions

(4)   Nonelective contributions.1

Salary reduction and catch-up contributions are made by the employee, and the employer is responsible for making either a matching or nonelective contribution.

Catch-up contributions are additional elective deferrals for individuals age 50 or over, which are not subject to the general contribution ceiling of $16,500 in 2025 ( Q 3706, Q 3761). All SIMPLE IRA contributions are excludable from the employee’s income, provided they meet certain design requirements set forth in the IRC.2 Moreover, certain lower income taxpayers may be eligible to claim the saver’s credit for salary reduction contributions to a SIMPLE IRA ( Q 3648).

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