3644. How are SIMPLE IRA plan contributions taxed?Nuco Employeercline202014-06-03T20:42:00Z2014-06-03T20:42:00Z34222412Albany Law School205282914Site Map/Individual Retirement Plans/SIMPLE IRA2005-01-25T00:00:00ZTaxFactsDefaultArticle114960243-00-tf1.xml244.00;#1793;#0x010100C568DB52D9D0A14D9B2FDCC96666E9F2007948130EC3DB064584E219954237AF3900242457EFB8B24247815D688C526CD44D009C4E67E972694125ABDA91AC61F5E51FTax Facts 1How are SIMPLE IRA plan contributions taxed?129700.000000000TaxFactsDefaultArticle2010-01-15T01:01:22ZSBMEDIA\moss-admin3644. How are SIMPLE IRA plan contributions taxed?There are four possible types of contributions to a SIMPLE IRA plan. (1)Salary reduction contributions(2)Catch-up contributions(3)Matching contributions (4)Nonelective contributionsSee IRC Secs. 408(p)(2), 414(v). 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 (not subject to the $12,000 ceiling in 2014) for individuals age fifty or over (Q 3641, Q 3688). All SIMPLE IRA contributions are excludable from the employee’s income, provided they meet certain design requirements set forth in the IRC.See IRC Secs. 402(k), 402(h)(1), 402(e)(3); see IRC Sec. 414(v); Notice 98-4, 1998-1 CB 25. Moreover, certain lower income taxpayers may be eligible to claim the saver’s credit for salary reduction contributions to a SIMPLE IRA (Q 3599).Contributions to a SIMPLE IRA are not subject to income tax withholding, but salary reduction contributions are included in wages for purposes of Social Security tax and federal unemployment tax (i.e., FICA and FUTA). Consequently, salary deferrals are subject to FICA and FUTA withholding. It appears that “salary deferrals,” for this purpose, would include catch-up contributions.See IRC Secs. 414(v)(1), 414(v)(6)(B). By contrast, matching contributions and nonelective contributions made by the employer are excluded from wages for purposes of Social Security tax and federal unemployment tax; they are not subject to FICA or FUTA withholding.See IRC Secs. 3121(a), 3306(a), 3401(a)(12); Notice 98-4, 1998-1 CB 25.Employer contributions to a SIMPLE IRA generally are deductible by the employer.IRC Sec. 404(m)(1). Matching and nonelective contributions can be made after the close of the tax year to which they are attributable, provided they are made before the due date for filing the employer’s federal income tax return for the taxable year (including extensions).IRC Sec. 404(m)(2)(B). Contributions to a SIMPLE IRA are not subject to the annual dollar limit for traditional or Roth IRAs.IRC Sec. 408(p)(8). Nondeductible contributions are subject to a 10 percent penalty.IRC Sec. 4972(d)(1)(A)(iv).SIMPLE IRA accounts themselves are not subject to tax. The taxation of distributions from a SIMPLE IRA is the same as under a traditional IRA; thus, contributions generally are not taxable until withdrawn.IRC Secs. 402(k), 402(h)(3); General Explanation of Tax Legislation Enacted in the 104th Congress (JCT-12-96), p. 141 (the 1996 Blue Book). The early distribution penalty (Q 3620) is increased to 25 percent during the first two years of participation in a SIMPLE IRA; after the two year period has elapsed, the penalty is 10 percent.IRC Sec. 72(t)(6).A SIMPLE IRA may not be designated as a Roth IRA.IRC Sec. 408A(f)(1).