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Video instructions and help with filling out and completing simple ira rules 2021
Hi everyone David Waltrip certified financial planner with Bridgeview Capital Advisors and the astute advisor personal finance site we're gonna get right into discussing how simple IRA matching works this is a topic that comes up a lot I get questions from employers and employees participating in SIMPLE IRA plans and it often has to do with confusion surrounding the matching components of a simple IRA plan there are two methods of matching for a simple IRA plan the first is 2% non-elective the second is 3% elective now there can be some confusion about these terms they aren't terms that we use every day but basically what you want to keep in mind is that 2% non-elective requires no contribution from the employee in order to receive a match the employee whether they contribute or not they're going to get a contribution from the employer now the 3% elective that is referring to the idea that an employee must put their own dollars into the SIMPLE IRA plan in order to receive a match we're going to go into detail and show some examples for each of these matching components in a simple IRA so the 2% non-elective this is where every employee gets a company contribution regardless of whether they contribute or not 2% non-elective first example employee gets a hundred thousand dollar salary employee contributes five thousand of their own dollars into a simple IRA the company is only on the hook for two thousand again that two thousand is based on two percent of the employees salary has nothing to do with how much the employee contributes next example of an employee that is earning $100,000 a year employee is contributing 2021 the company must contribute 2,000 now remember the 2% non-elective contribution is made based on the employees salary not the amount that the employee is contributing so don't think that because the employee contributes 2,000 that they're getting a 2021 dollar contribution they would get that contribution anyway so the last example for the 2% non-elective again employee salary of a hundred thousand in this scenario employee contributes zero dollars to the plan how much does the employee get from the employer you guessed it two thousand dollars as a review the two percent non-elective that matching component allows an employee to receive money from the employer even though they don't put their own dollars in let's take a look at the three percent elective the three percent elective means the business must match employee contributions dollar for dollar up to three percent of the employees compensation now I recognize that's kind of a mouthful but what you want to remember with three percent elective is the employee is not going to get any dollars from the employer unless they put their own money in however the employer isn't on the hook for you know whatever the employee wants to contribute the employer is only on the hook to cover up to three.