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5304 simple vs 5305 Simple Form: What You Should Know

This form also provides guidance on the maximum amount to be contributed to the SIMPLE IRA Plan. The maximum contribution is shown in the column headed “Maximum Contribution Amount “. If your plan is approved at less than the maximum, there is an additional limit: 20% per paycheck on a prorated basis. Form 5304-SIMPLE A SIMPLE IRA plan that participates in the plan is called a “SIMPLE IRA Plan.” The plan must consist of one or more of the following basic  frequencies: 1) Employer contributions (directly or indirectly), 2) Employee contributions by the employees, 3) Employee savings incentives and employer interest, 4) Employee participation in employer's plan. The maximum amount of contributions for an employee is limited to 17,000 a year. Contributions are limited to 2,800 per calendar year and there is a maximum of 16,000 in employer contributions. Employer contributions are subject to income tax on the greatest of 3,000 (4,000 for employees age 50 or older  and 6,000 for other employees) or the amount of salary for which you pay the employee (or 7,000 for both). Employer contribution limits can be reduced to meet the requirements of the plan. For a plan that is terminated or modified, contribution limits can be adjusted up or down. The Plan Employer Contributions (Prorated) Limits (Form 5304-SIMPLE) are based on plan eligibility. Eligibility and limits for a SIMPLE IRA are set forth in the  Form 5304-SIMPLE. The forms also have more detail on how to reduce and/or eliminate the employer payroll tax. If you will be making contributions for your SIMPLE IRA, it helps if you understand the differences between SIMPLE IRA plans and employer 401ks. The SIMPLE IRA plan is an “opt out” plan. You generally cannot change benefits you receive by contributing to an SIMPLE IRA plan. You can still contribute to an employer 401k, except 401k contributions are allowed to a SIMPLE IRA in any year. The SIMPLE IRA Plan cannot be used to make a catch-up contribution to an employer 401k. The SIMPLE IRA Plan may, however, be considered part of an employer 401k that has a participant matching contribution of 5,000.

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