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Small Business IRA Contributions - FAQs for 2018

small-business-contributions-2018.pngEstimated reading time: 3 minutes

It's contribution season, which means, small businesses who hold IRAs have to contribute a dollar amount into their small business IRAs. All IRA contributions must be made by check, wire transfer, or cash.

Certain requirements must be met in order to contribute to each account type. IRA contributions are discretionary, meaning that you are not required to make deposits every year.

To help our readers understand contributions a bit better, we've answered the most frequently asked questions about small business IRA contributions:

Q: How much can I contribute to my SEP?

A: The contributions you make to each employee’s SEP IRA each year cannot exceed the lesser of 25% of compensation, or $55,000 for 2018. These limits apply to contributions you make for your employees to all defined contribution plans, which includes SEPs. Compensation up to $275,000 in 2018 of an employee’s compensation may be considered.

Q: How much can I contribute if I’m self-employed?

A: The same limits on contributions made to employees’ SEP IRAs also apply to contributions for you as a self-employed business. See IRS publication 560 to determine the amount you can contribute.

Q: Must I contribute the same percentage of salary for all participants?

A: Yes, most SEPs require you to make allocations proportional to your employees' salary/wages. This means that everyone’s contribution is the same percentage of salary.

Q: Must I contribute the same percentage of salary for all participants?

A: No, contributions to employees’ SEP IRAs are not included in their gross income.

Q: What types of contributions may be made to a SIMPLE IRA plan?

A: Each eligible employee may make a salary reduction contribution and the employer must make either a matching contribution or nonelective contribution. No other contributions may be made under a SIMPLE IRA plan.

Q: How much must I contribute for my employees participating in our SIMPLE IRA plan?

A: You're generally required to either:

  1. Match each employee's salary reduction contribution on a dollar-for-dollar basis up to 3% of the employee's compensation
  2. Make nonelective contributions of 2% of the employee's compensation up to the annual limit of $275,000 for 2018. If you choose to make nonelective contributions, you must make them for all eligible employees whether or not they make salary reduction contributions.

Q: How much can I contribute to my Individual 401(k)?

The maximum contribution limit has two components, the employee’s elective deferral as well as the employer’s profit sharing contribution.

The maximum employee elective deferral limit is $18,500 for 2018. The maximum employer profit sharing contribution is up to 25% of compensation not to exceed $55,000  for 2018.

Both elective deferral and profit sharing contribution combined is not to exceed the $55,000 for 2018 limit. Only after the elective deferral limit has been met can an additional catch-up contribution of $6,000 be made.

Q: Are there any additional compliance requirements for Individual 401(k) plans?

A: Yes, that is why it is good to involve your tax or legal advisor to act as your counsel in maintaining your plan. For more information on Individual 401(k) requirements visit the IRS website.

For more information regarding Self-Directed IRA contribution rules, FAQs, and important deadlines for all account types, please visit our IRA Contribution page here.

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