If you`re a Fidelity Simple IRA plan participant, you`ve likely received information about the salary reduction agreement for 2021. But what exactly is a salary reduction agreement, and how does it affect your contributions to your retirement account?

First, let`s define what a Simple IRA is. A Simple IRA (Savings Incentive Match Plan for Employees) is a retirement plan option for small businesses with 100 or fewer employees. It allows employees to contribute pre-tax dollars to their retirement account, and employers may choose to match employee contributions up to a certain percentage.

Now, let`s talk about the salary reduction agreement. This is a written agreement between you and your employer that specifies the amount of your salary that will be contributed to your Simple IRA. The agreement may be for a certain period of time (such as a year), and can be changed by you or your employer as necessary.

For 2021, the maximum amount you can contribute to your Simple IRA through salary reduction is $13,500. If you`re over the age of 50, you can make an additional catch-up contribution of up to $3,000, for a total of $16,500. Your employer may also contribute to your account, up to a maximum of 3% of your salary.

One important thing to note is that if you have other employer-sponsored retirement plans (such as a 401(k)), the total amount you can contribute to all plans combined is subject to annual limits set by the IRS. For 2021, the combined limit for all employer-sponsored plans is $58,000, or $64,500 if you`re over 50.

So, why should you participate in your employer`s Simple IRA plan and make contributions through the salary reduction agreement? For one, it`s a tax-advantaged way to save for retirement. Your contributions are made with pre-tax dollars, meaning they`re deducted from your taxable income for the year. This can reduce your tax liability and potentially boost your refund.

Additionally, your contributions and any earnings on them grow tax-deferred until you withdraw them in retirement. This allows your money to potentially grow faster than it would in a taxable account.

Of course, contributing to your retirement account is a personal decision and depends on your individual financial situation. But if you`re eligible to participate in a Simple IRA plan through your employer, it`s worth considering as a retirement savings option.

In conclusion, the Fidelity Simple IRA salary reduction agreement for 2021 is an important document for plan participants to review and understand. By making contributions through the agreement, you can take advantage of tax-advantaged retirement savings and potentially grow your money faster than in a taxable account. Be sure to consult with a financial advisor or tax professional if you have any questions or concerns about your retirement savings strategy.