SIMPLE IRA

What a SIMPLE IRA is

SIMPLE stands for Savings Incentive Match Plan for Employees. Each employee has an IRA that receives their salary deferrals and the employer’s contribution. In 2026 employees can defer up to $17,000, plus a $4,000 catch-up at age 50 or older ($5,250 at ages 60 to 63). SECURE 2.0 allows a higher deferral limit at some employers, mainly those with 25 or fewer employees.

For 2027 the deferral limit rises to $17,500; the $4,000 catch-up is unchanged. (IRS Notice 2026-66)

The employer must choose one of two contributions each year:

• A dollar-for-dollar match up to 3% of pay.

• A 2% nonelective contribution for every eligible employee, counting pay up to $360,000 in 2026.

All contributions are 100% vested.

Why it matters to employers

A SIMPLE IRA has no nondiscrimination testing and no Form 5500. In exchange, the employer contribution is mandatory, the deferral limit is lower than a 401(k)’s $24,500, and you generally cannot run another retirement plan in the same year. It is available only if you had 100 or fewer employees who earned $5,000 or more in the prior year.

Example

An employee earning $50,000 defers 6% ($3,000). With the 3% match the employer contributes $1,500. With the 2% nonelective option the employer contributes $1,000 to that employee, and the same 2% to employees who defer nothing.

Common mistakes

• Missing the annual notice and election period, which generally runs for 60 days before each year.

• Switching to a 401(k) mid-year without following the replacement rules. SECURE 2.0 allows a mid-year move to a safe harbor 401(k) under conditions in IRS Notice 2024-2: the employer ends the SIMPLE IRA by formal written action, tells employees at least 30 days before the termination date, and a prorated combined deferral limit applies for that year.

• Leaving out eligible employees, such as part-timers who earned $5,000 in two prior years.

• Depositing deferrals late. They are due within 30 days after the month they were withheld.