Contributions under a salary reduction agreement are called salary
reduction contributions. They are made on your behalf by your
employer. Your employer must also make either matching contributions
or nonelective contributions.
Salary reduction contributions.
During the 60-day period before the beginning of any year, and
during the 60-day period before you are eligible, you can choose
salary reduction contributions expressed either as a percentage of
compensation, or as a specific dollar amount (if your employer offers
this choice). You can choose to cancel the election at any time during
the year.
Your employer cannot place restrictions on the contributions amount
(such as by limiting the contributions percentage), except to comply
with the salary reduction contributions limit, discussed under
Salary reduction contributions, later.
Matching contributions.
Unless your employer chooses to make nonelective contributions,
your employer must make contributions equal to the salary reduction
contributions you choose (elect), but only up to certain limits. See
How Much Can Be Contributed on My Behalf?, later. These
contributions are in addition to the salary reduction contributions
and must be made to the SIMPLE IRAs of all eligible employees (defined
earlier) who chose salary reductions. These contributions are referred
to as matching contributions.
Matching contributions on behalf of a self-employed individual are
not treated as salary reduction contributions.
Nonelective contributions.
Instead of making matching contributions, your employer may be able
to choose to make nonelective contributions on behalf of all eligible
employees. These nonelective contributions must be made on behalf of
each eligible employee who has at least $5,000 of compensation from
your employer, whether or not the employee chose salary reductions.
One of the requirements your employer must satisfy is notifying the
employees that the election was made. For other requirements that your
employer must satisfy, see Publication 560.
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