Can I Contribute to a SIMPLE IRA From a Non Self-employed Income?

A SIMPLE IRA is a retirement plan offered by small businesses that allows employers and employees to contribute income that accrues tax deferred. Since SIMPLE IRAs are employer-sponsored plans, an individual who does not own a business cannot set up a plan for his personal benefit. However, an individual with no self-employed income can contribute to a SIMPLE IRA set up by his employer.

SIMPLE IRA

A SIMPLE plan is a "Savings Incentive Match PLan for Employees" that a company with no more than 100 employees can provide as its retirement plan. SIMPLE IRA plans typically have lower initial and ongoing administrative costs than do Keogh plans or 401(k) plans. In addition, a SIMPLE IRA has no filing requirements for the providing company. An employer that provides a SIMPLE IRA plan cannot offer any other retirement plan.

Contributions

As an eligible employee of a company providing a SIMPLE IRA plan, you can contribute to the plan via a salary deduction. Your contribution, expressed as either a percentage of your compensation or a particular dollar amount, is the amount you elect to contribute to your SIMPLE IRA. The only restrictions your employer can place on your contribution is compliance with the IRS' annual contribution limits for defined contribution plans. In most years, your employer must make a matching contribution or a non-elective contribution. A SIMPLE IRA plan allows no other contributions.

Eligibility and Maximum Employee Contribution

If your employer offers a SIMPLE IRA and you make at least $5,000 a year in wages, part-time or full-time, you are eligible to participate in the plan. The maximum amount you can contribute to a SIMPLE IRA as a regular, non-self-employed employee is $11,500 in 2012 and $12,000 in 2013. These limits increase annually according to cost-of-living adjustments. If you are age 50 or over, you can make a catch-up contribution of up to $2,500 in both 2012 and 2013. Your SIMPLE IRA contributions are considered "elective deferrals."

Multiple Employers

A SIMPLE IRA extends coverage to part-time employees. This increases the chance that a participant may work part-time or full-time for another employer. The IRS allows an employee to contribute to a SIMPLE IRA plan while participating in a different employer's sponsored plan in the same year. However, if you elect deferrals to a SIMPLE IRA and contribute under another plan with deferral elections at a different employer, the total contribution you can spread between both plans is $11,500.