A Savings Incentive Match Plan for Employees Individual Retirement Account, or SIMPLE IRA for short, lets employers with 100 or fewer employees offer a tax-deferred retirement plan for their employees. Your contributions, as well as your employer's matching contributions, don't count as taxable income when you contribute, but you will pay taxes on the distributions when you eventually take out the money.
The IRS caps employee contributions to SIMPLE IRAs each year based on your age. For 2013, you can contribute up to $14,500 if you'll turn 50 or older during the year, up from $14,000 in 2012. If you're not yet 50, your contribution limit is a little smaller -- $12,500 for 2013, up from $12,000 in 2012. However, these limits can change each year with inflation.
Can't Exceed Compensation
Your contributions to your SIMPLE IRA can't exceed your compensation from the company that sponsors the plan, because employee contributions can only be made through salary deductions. For example, say you work two jobs and earn $80,000 total. However, suppose that you only earn $8,000 from the job that sponsors your SIMPLE IRA. Even though your total compensation exceeds your contribution limit, you can't exceed $8,000 in SIMPLE IRA contributions because that's all the compensation you have at that job.
Other Employer Plans
A SIMPLE IRA is a defined contribution plan, which means that your contributions are combined with other employer plans like 401(k)s and 403(b)s when determining whether you've exceeded your total elective deferral limit. As of 2013, the limit is $23,000 if you're 50 or older and $17,500 if you're under 50. For example, suppose you're 55, your other job offers a 401(k) plan and you contribute $20,000 to that plan. The most you could contribute to your SIMPLE IRA is $3,000.
No Age Limit
Unlike traditional IRAs, the IRS does not stop you from making further SIMPLE IRA contributions when you turn 70 1/2 years old. Your employer must also continue to match your contributions, regardless of your age. However, you will have to start taking required minimum distributions that year.