Simple IRA / Section 125

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Simple IRA / Section 125

Post by vnatale » Fri Dec 13, 2019 6:02 pm

Are any of you part of a SIMPLE IRA and paying your share of health insurance premiums on a pre-tax basis?

I believe that in Massachusetts for decades it has been mandatory for employers to offer employees a Section 125 so that the employees' payments toward their share of health insurance premiums can all be done on a pre-tax basis.

Our organization is establishing a SIMPLE IRA effective January 1, 2020. One question I have not been able to determine is whether or not compensation for SIMPLE IRA purposes is before or after the Section 125 deduction. The SIMPLE IRA will be with Vanguard. I asked the Vanguard representative this question and his reply was that this "was outside his scope".

On the one hand in the instructions for the SIMPLE IRA Form 5305 it says that compensation is generally what is subject to federal income taxes and what is reported in Box 1 of the W2. However, it does say that the deferral for the SIMPLE IRA is included in income for SIMPLE IRA compensation purposes (which, of course, is not subject to federal income taxes or reported in Box 1).

Hoping that one or more of you have direct experience with this and tell me what is happening in your case.


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