SIMPLE IRA Contribution Limits for 2023

We’ve come to the end of this year, and it’s time to face the SIMPLE IRA contribution limits for the following year.

Why are we interested in the contribution limits?

Well, these limitations might make someone change their mind about whether to contribute to this retirement account or find an alternative.

Let’s see what we can expect for 2023 and whether the SIMPLE IRA is the right retirement plan for you.

Table of Contents

    Simple IRA Contribution Limits 2022 vs. 2023

    Why does a SIMPLE IRA contribution limit exist in the first place? Because IRAs are tax-advantaged accounts, there are limits on how much you can put into them. This keeps the rich from getting more benefits than the average American.

    The SIMPLE IRA limits in 2022 were:

    • $14,000 for employees under the age of 50.
    • $17,000 for employees the age of 50 or older.

    It will change in 2023 to a contribution limit of:

    • $15,500 for employees under the age of 50,
    • $19,000 for employees age 50 or older.
    SIMPLE IRA contribution limits

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    It’s possible for an employee to participate in any other employer plan. In that case, “the total amount of the salary reduction contributions that an employee can make to all the plans he or she participates in is limited to $22,500 in 2023,” according to the IRS.

    Contribution Deadlines

    Employees who choose to contribute to the plan must do so within 30 days of the end of the month in which the amounts become payable to them. The deadline for making IRA contributions for the tax year 2022 is April 15, 2023.

    On the other hand, the employer must make contributions before the deadline for filing business income tax returns, including any extensions that may be needed.

    For self-employed people (with no common-law employees), the deadline is January 30th.

    Catch-up Contribution Limit

    Employees who are 50 or older at the end of the calendar year can make additional catch-up contributions if the SIMPLE IRA plan allows it.

    In 2023, the catch-up contribution limit for SIMPLE IRA plans is $3,500. Catch-up contributions were limited to $3,000 from 2015 to 2022.

    401(k) vs. SIMPLE IRA Contribution Limits

    When we compare these contribution limits to the 401(k), they are lower. Employees under the age of 50 with a 401(k) plan can contribute up to $22,500 in 2023 (for 2022, that sum was $20,500).

    People who are 50 years old or older can contribute a maximum of $30,000 in 2023 (in 2022, it was $25,000).

    On top of the difference in contribution limits, these two workplace retirement plans have another discrepancy: SIMPLE IRAs are available only at firms with 100 or fewer employees.

    Other than that, 401(k)s and SIMPLE IRAs work similarly. Both of these retirement accounts let investors put off paying taxes on their contributions and the growth of their investments until they use the money.

    Employees’ SIMPLE IRA ELIGIBILITY Rules

    Here are the conditions employees have to meet to become eligible for SIMPLE IRA accounts:

    • Earned at least $5,000 from their employer in the previous two calendar years.
    • They are expecting to earn at least $5,000 this year.
    • Work in a small company that offers a SIMPLE IRA.

    So, SIMPLE IRAs are intended to be a simpler and more straightforward way for small businesses to help their employees save for retirement.

    But are they successfully managed?

    Let’s look at the issues with the SIMPLE IRA.

    Employer Matching Contributions

    The employer is obligated to match each employee’s salary reduction contributions. The company does this on a dollar-for-dollar basis, with a maximum of 3% of the employee’s salary.

    The only condition under which this requirement doesn’t apply is if the employer chooses to make non-elective contributions.

    • Reduced percentage of the employer match. Employers have the option of selecting matching contributions of less than 3%. However, the minimum they have to meet is 1% and for no more than 2 out of 5 years. Also, an employer must tell his employees within a reasonable amount of time about the lower matching contributions. They should do that before the 60-day election period for the current year.

    Non-Elective Contributions

    An employer can choose to make non-elective contributions of 2% of each eligible employee’s compensation instead of matching contributions.

    Employers must make non-elective contributions if this decision is made, regardless of whether the employee elects to make salary reduction contributions.

    The contribution limit is based on an employee’s compensation of up to $330,000 in 2023 (while it was $305,000 in 2022).

    Time Limits for Contributing Funds

    Employers also have to put employees’ income-reduction contributions into the SIMPLE IRA within 30 days of the end of the month when the employee would get the cash. They must make matching or non-elective contributions by the due date (including extensions) of their annual federal income tax return.

    SIMPLE IRA Withdrawal Rules

    Okay, so you’re contributing money year after year, but can you use that money? Technically – yes, but it’s not designed for that. 

    The withdrawal is taxed normally, but there is an early withdrawal penalty if you are under the age of 59 ½. You may have to pay an additional 10% or 25% tax on the money you withdraw from your SIMPLE IRA. Even if you can withdraw that money, it’s an extremely expensive option.

    There are also exceptions to additional taxes. When you withdraw the money, you do not have to pay any other taxes if you are 59 1/2 or older.

    Other exceptions:

    • If your withdrawal is not more than:
      • Your unreimbursed medical expenses. If they are more than 10% of your adjusted gross income, you are excluded from additional taxes. If your spouse is 65 or older, the criterion is 7.5%.
      • The amount of money for medical insurance while you’re unemployed.
      • The expenses for higher education.
      • The amount of money for purchasing or rebuilding a first home.
    • An annuity is the form of your withdrawal.
    • A reservist distribution qualifies your withdrawal.
    • If you are disabled.
    • If you got a SIMPLE IRA account from someone who died.
    • If your withdrawal is because of an IRS levy.

    Drawbacks of SIMPLE IRAs

    • Low contribution limits. SIMPLE plan contribution limits are lower than those of a 401(k) or a SEP IRA, for example.
    • Rollover from other plans is restrictive. While employees can transfer funds from one SIMPLE IRA to another, they must wait two years from the start of the plan before rolling over funds from a SIMPLE IRA to a traditional IRA. The IRS establishes numerous requirements for the rollover and transfer processes.
    • Limitations. Employers are not permitted to offer any other type of retirement plan. There is also no Roth option with a SIMPLE IRA. Furthermore, unlike other types of retirement accounts, employees cannot take out a loan or make a hardship withdrawal from their SIMPLE IRA.
    • Employer rules for mandatory contributions. Even if employees do not contribute, the employer is required to contribute up to 2% of the employee’s annual salary to the account.
    • Income taxes. Even though you are not paying taxes when your money goes to a retirement account, that money will be taxed when you hit 59 1/2. This is a serious disadvantage because it is a high chance that the tax bracket will increase. On top of that, we can’t really predict inflation in the future. It’s very common for people to end up with less money than they contributed.
    • It is not possible to use the money before the age of 59 1/2. There are only a few exceptions when you can withdraw your money without paying a high amount of penalties.
    • Overcontributing is forbidden. If you don’t follow SIMPLE IRA contribution limits, you must pay a 6% penalty tax on the excess amount every year. So, people who have higher salaries, or want to save more for retirement, have to find an alternative way to save.

    So, maybe the SIMPLE IRA isn’t as tax-advantaged as it might seem?

    If we only had the option to make our retirement savings more beneficial. What retirement plan will suit your needs?

    We don’t know about you, but when we were choosing our plan for retirement, we wanted everything opposite of a SIMPLE IRA. We wanted a method that wouldn’t limit us, that would truly be tax-advantaged, give us tax benefits, and ensure our financial stability in the future.

    And we found that! We’ve found the system that works for us, not against us. And we’re more than happy to introduce you to infinite banking.

    Infinite Banking

    In their simplest form, retirement accounts are designed for you to deposit money in them, and after a certain number of years, you take the money out to finance your golden years.

    The main point of infinite banking is the same, but there are a few important differences:

    • With infinite banking, you can use the money before turning a certain age. Thanks to the whole life policy which is underlying this process, you can use the money whenever you need it and for any reason. And there is more! You won’t pay any penalties for doing so.
    • Unlike SIMPLE IRAs, with infinite banking, you don’t have yearly contribution limits. You can contribute as much money as you want. In fact, it’s more profitable if you contribute more money.
    • You can set up your own banking system to help you finance the retirement, and it won’t be taxed as income. When you’re depositing money in your whole policy, you’re stashing after-tax dollars so in the future there is no tax bill on your money.
    • You know exactly how much money you have now and how much you’ll have in the future because you have guaranteed compound interest and level premium. There is no surprise.
    • Your personal banking system isn’t connected to your employer, so it’s easier to be in control of it and it’s more beneficial for self-employed individuals.
    tax-advantaged accounts

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    How to Start Infinite Banking?

    Infinite banking is the idea of putting your money in a whole life insurance policy with a high cash value. So, to start your personal banking system, you need the whole life policy, where you will fund as much money as possible to build a cash value.

    We do this because whole life has a savings component, called cash value, where your money continues to grow at the guaranteed interest rate. And there is another reason: the whole life policy allows you to borrow money against it.

    You take a loan from your policy to fund whatever you need. Moreover, you control when you will pay it back and with how much interest. For your personal bank, it’s better to pay it back, but if it’s not convenient for you, you don’t have to.

    You’re basically copying the traditional banking system. But instead of a savings account, you have a whole life insurance policy, which gives you more control over your money. And instead of a traditional bank that will charge you high interest fees, you will have your own bank. 

    The infinite banking system is so flexible that each person can tailor it to meet their own needs. Since we use this method to finance our own lifestyle, we call it “lifestyle banking.”

    Sounds interesting?

    Check Out Our Free Masterclass!

    Lifestyle banking is a successful way to take control of your personal finances, but you need to start out right. It means you have to have the right mindset and enough knowledge to make investments and manage your funds.

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