If your employer offers a savings incentive match plan for employees — a SIMPLE IRA, for short — you're in luck because you can sock away more money each year for retirement. Simple IRAs are tax-deferred plans created by your employer. Traditional IRAs also offer tax-deferred savings, but you set them up yourself. You can also set up a Roth IRA on your own, but it offers after-tax savings. Simple IRAs and non-employer-sponsored IRAs don't share a common limit, so as long as you're eligible, you can max out both contribution limits.
Simple IRA Limits
Simple IRAs allow you to defer up to $12,000 per year from your salary to the account as of 2013. But, your limit is lower if your salary is less than the annual limit. For example, say you have $60,000 of income from multiple jobs, but your salary from the company offering the Simple IRA is only $10,000. You can't contribute more than $10,000 for the year because that's all you earned at that job.
Traditional and Roth IRAs
Traditional and Roth IRAs allow you to contribute up to the smaller of your compensation for the year or the standard contribution limit. Your compensation includes your income from working, like a salary or self-employment income, and taxable alimony. As of 2013, the maximum contribution is $5,550, which includes both your traditional IRA and Roth IRA contributions. For example, if you put $5,500 in your Roth IRA, you can't contribute at all to your traditional IRA.
Traditional IRA Deduction Limits
A Simple IRA counts as an employer plan, so if you participate, you can't deduct your traditional IRA contributions if your modified adjusted gross income is too high. You're considered a plan participant in a Simple IRA if either you or your employer makes a contribution on your behalf. For example, if you don't put any money in your Simple IRA, but your employer makes a contribution on your behalf, you're covered. As of 2013, if you're single, your maximum traditional IRA deduction starts falling when your MAGI hits $59,000 and disappears totally when you surpass $69,000. If you're married filing jointly, the limits are higher — your deduction doesn't start falling until $95,000 and doesn't completely disappear until $115,000.
You can only make Simple IRA contributions through salary reduction agreements -- you tell your employer how much to withhold from your paycheck and your employer takes it out before paying you. So, you usually make the contributions over the course of the year. With a traditional or Roth IRA, you make the deposit out of your own funds into the account, so you can contribute as much as you want at a time -- within the annual contribution limits, of course. For example, you could put in $5,500 at the start of the year to start taking advantage of the tax-sheltered growth as soon as possible, or spread out the contributions over the year to even out the impact on your savings account.
- Internal Revenue Service: Publication 560 -- Individual Retirement Arrangements
- Internal Revenue Service: Operating a SIMPLE IRA Plan
- Internal Revenue Service: Publication 560 -- Retirement Plans for Small Businesses
- Internal Revenue Service: Are You Covered by an Employer's Retirement Plan?
- Internal Revenue Service: IRS Announces 2013 Pension Plan Limitations