When a SIMPLE IRA contribution is due depends on the type of contribution and whether the employer or employee is making it. The following is a breakdown of what you need to know.

How SIMPLE IRAs Work

A SIMPLE IRA is an employer-sponsored plan that provides employees a tax-advantaged way to save for retirement. SIMPLE is an acronym for "Savings Incentive Match Plan for Employees."

Key Takeaways

  • When SIMPLE IRA contributions are due depends on whether the employer or employee is making it and the type of contribution.
  • Employers either match employee contributions or contribute on their behalf.
  • Contributions that are not made in a timely manner may incur fees or necessitate the filing of an amended tax return.

Like the name implies, SIMPLE IRAs are designed to be easily established and administered, particularly when compared to other employer-sponsored plans such as a 401(k). Businesses, including sole proprietors, with less than 100 employees can set one up.

There are two ways contributions are made to a SIMPLE IRA—employers can either match employee contributions or make contributions on their behalf. Depositing SIMPLE IRA deferred compensation, matching, and non-elective contributions when they are due will avoid penalties and amended tax returns.

When Employee Contributions Are Due

Contributions to SIMPLE IRA plans that are taken from an employee's paycheck as a salary reduction contribution are due within 30 days of the month in which the deferred payments were made. For contributions taken from an employee's pay in September, for instance, the contributions must be deposited into the SIMPLE plan by Oct. 30 of the same year.

In 2019, the contribution limit for employees is $13,000 and those 50 and older can make an additional catch-up contribution of up to $3,000.

If the SIMPLE IRA is set up for someone who is self-employed and there are no other employees, contributions that are reductions in pay must be deposited within 30 days of the end of the year, or Jan. 30th of the following year.

When Employer Contributions Are Due

An employer may choose to make either matching contributions to an employee's SIMPLE IRA, from 1% to 3% of his or her salary, or non-elective contributions of 2% of the employee's salary, no matter what or if the employee contributes. Contributions made on the part of the employer are due by the business' filing due date for the tax year—usually April 15, or Oct. 15 if there is an extension.

Department of Labor Rules

However, there are Department of Labor (DOL) rules governing SIMPLE IRA plans that are different from IRS requirements. According to the DOL, employers must make contributions that are taken from an employee's salary as soon as they can reasonably do so, but no later than seven business days for businesses with fewer than 100 employees.

This rule does not generally apply to business owners with no employees or whose only employee is their spouse.