Form 5305-SIMPLE (Rev. 3-2012)
Page 5
applicable amount for any calendar year.
The applicable amount is $11,500 for
2012. After 2012, the $11,500 amount
may be increased for cost-of-living
adjustments. In the case of an eligible
employee who is 50 or older by the end
of the calendar year, the above limitation
is increased by $2,500 for 2012. After
2012, the $2,500 amount may be
increased for cost-of-living adjustments.
Timing of Salary Reduction
Elections
For a calendar year, an eligible employee
may make or modify a salary reduction
election during the 60-day period
immediately preceding January 1 of that
year. However, for the year in which the
employee becomes eligible to make
salary reduction contributions, the period
during which the employee may make or
modify the election is a 60-day period
that includes either the date the
employee becomes eligible or the day
before.
You can extend the 60-day election
periods to provide additional
opportunities for eligible employees to
make or modify salary reduction
elections using the blank in Article II,
item 2b. For example, you can provide
that eligible employees may make new
salary reduction elections or modify prior
elections for any calendar quarter during
the 30 days before that quarter.
You may use the Model Salary
Reduction Agreement on page 3 to
enable eligible employees to make or
modify salary reduction elections.
Employees must be permitted to
terminate their salary reduction elections
at any time. They may resume salary
reduction contributions for the year if
permitted under Article II, item 2b.
However, by checking the box in Article
II, item 2d, you may prohibit an
employee who terminates a salary
reduction election outside the normal
election cycle from resuming salary
reduction contributions during the
remainder of the calendar year.
Contributions (Article III)
Only contributions described below may
be made to this SIMPLE IRA plan. No
additional contributions may be made.
Salary Reduction Contributions
As indicated in Article III, item 1, salary
reduction contributions consist of the
amount by which the employee agrees
to reduce his or her compensation. You
must contribute the salary reduction
contributions to the designated financial
institution for the employee’s SIMPLE
IRA.
Matching Contributions
In general, you must contribute a
matching contribution to each eligible
employee’s SIMPLE IRA equal to the
employee’s salary reduction
contributions. This matching contribution
cannot exceed 3% of the employee’s
compensation. See Definition of
Compensation later.
You may reduce this 3% limit to a
lower percentage, but not lower than
1%. You cannot lower the 3% limit for
more than 2 calendar years out of the
5-year period ending with the calendar
year the reduction is effective.
Note. If any year in the 5-year period
described above is a year before you
first established any SIMPLE IRA plan,
you will be treated as making a 3%
matching contribution for that year for
purposes of determining when you may
reduce the employer matching
contribution.
To elect this option, you must notify
the employees of the reduced limit within
a reasonable period of time before the
applicable 60-day election periods for
the year. See Timing of Salary Reduction
Elections earlier.
Nonelective Contributions
Instead of making a matching
contribution, you may, for any year,
make a nonelective contribution equal to
2% of compensation for each eligible
employee who has at least $5,000 in
compensation for the year. Nonelective
contributions may not be based on more
than $250,000* of compensation.
To elect to make nonelective
contributions, you must notify employees
within a reasonable period of time before
the applicable 60-day election periods
for such year. See Timing of Salary
Reduction Elections earlier.
Note. Insert “$5,000” in Article III, item
2b(i) to impose the $5,000 compensation
requirement. You may expand the group
of employees who are eligible for
nonelective contributions by inserting a
compensation amount lower than
$5,000.
Effective Date (Article VII)
Insert in Article VII the date you want the
provisions of the SIMPLE IRA plan to
become effective. You must insert
January 1 of the applicable year unless
this is the first year for which you are
adopting any SIMPLE IRA plan. If this is
the first year for which you are adopting
a SIMPLE IRA plan, you may insert any
date between January 1 and October 1,
inclusive of the applicable year.
Additional Information
Timing of Salary Reduction
Contributions
The employer must make the salary
reduction contributions to the
designated financial institution for the
SIMPLE IRAs of all eligible employees
no later than the 30th day of the month
following the month in which the
amounts would otherwise have been
payable to the employee in cash.
The Department of Labor has
indicated that most SIMPLE IRA plans
are also subject to Title I of the
Employee Retirement Income Security
Act of 1974 (ERISA). Under Department
of Labor regulations, at 29 CFR
2510.3-102, salary reduction
contributions must be made to the
SIMPLE IRA at the designated financial
institution as of the earliest date on
which those contributions can
reasonably be segregated from the
employer’s general assets, but in no
event later than the 30-day deadline
described previously.
Definition of Compensation
“Compensation” means the amount
described in section 6051(a)(3) (wages,
tips, and other compensation from the
employer subject to federal income tax
withholding under section 3401(a)), and
amounts paid for domestic service in a
private home, local college club, or local
chapter of a college fraternity or sorority.
Usually, this is the amount shown in box
1 of Form W-2, Wage and Tax
Statement. For further information, see
Pub. 15, Circular E, Employer’s Tax
Guide. Compensation also includes the
salary reduction contributions made
under this plan, and, if applicable,
compensation deferred under a section
457 plan. In determining an employee’s
compensation for prior years, the
employee’s elective deferrals under a
section 401(k) plan, a SARSEP, or a
section 403(b) annuity contract are also
included in the employee’s
compensation.
For self-employed individuals,
compensation means the net earnings
from self-employment determined under
section 1402(a), without regard to
section 1402(c)(6), prior to subtracting
any contributions made pursuant to this
SIMPLE IRA plan on behalf of the
individual.
* This is the amount for 2012. For later years, the limit may be increased for cost-of-living adjustments. The IRS announces the increase, if any, in a news release, in
the Internal Revenue Bulletin, and on the IRS’s website at IRS.gov.