SIMPLE IRA

From: "Steve Foulks" <steve_foulks@up.bresnan.net>
Subject: SIMPLE IRA
Date: Tue, 29 Dec 1998 11:22:11 -0500

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This is a pretty technical question... the maximum contribution to a SIMPLE
IRA for a self employed person is $6,000 per year.  In addition the self
employed person must contribute a match up to 3% of his/her self employment
income up to a maximum of $6,000.

The IRC says that "employees must be covered if they made $5,000 in the last
two years and expect to earn $5,000 in the current year."  Please note the
word "must".  It is pretty clear that an employer could cover an employee
even if the employee did not meet the minimum criteria.

 I wonder how this works for a self employed person?  Since their is no
percentage limitation for SIMPLE IRA's as their are for other types of
defined contribution plans and IRA's, it appears that a self employed person
could contribute $6,000 to a SIMPLE IRA, even if they had a tax loss from
this self employment activity.

I personally contributed $6,000 to a SIMPLE IRA earlier this year, thinking
that I would have to make sure that I reported $6,000 in self employment
income (not reporting all of my expenses if necessary to make a $6,000
profit).  I was assuming a 100% of income limitation up to $6,000.  Then I
began looking a lot more closely at the SIMPLE tax law and committee reports
that accompanied the tax bill.  I see no indication of any particular amount
of income that must be earned to contribute the maximum $6,000.

I am trying to pick the brain's of anyone out their who knows anything to
confirm or deny my reading of the law.

Steven M. Foulks, CPA, CFP, PhD       
http://www-instruct.nmu.edu/business/sfoulks/
or http://hitchhiker.nmu.edu/Foulks/

email: steve_foulks@up.bresnan.net <mailto:steve_foulks@up.bresnan.net>



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