SIMPLE IRA

A SIMPLE IRA (Savings Incentive Match Plan for Employees) is a retirement plan designed for business owners with 100 or fewer employees. It offers a straightforward way to help employees save for retirement through salary deferrals, while requiring modest employer contributions. SIMPLE IRAs are easy to set up and maintain, and they offer higher contribution limits than traditional or Roth IRAs.

This plan is especially well-suited for small businesses that want to offer a retirement benefit without the complexity of a 401(k). Employers must make contributions—either by matching employee deferrals or by contributing a fixed percentage for all eligible employees. Loans are not permitted, and the plan must be the only retirement plan offered by the business.

Business eligibility

Any type of business—including sole proprietorships, partnerships, LLCs, corporations (S or C), nonprofits and government entities—can establish a SIMPLE IRA, provided it has 100 or fewer employees who earned at least $5,000 in the previous year. The business cannot offer any other employer-sponsored retirement plan.

Employee eligibility

Employers may choose more lenient criteria, but the maximum eligibility requirements are:

• Earned at least $5,000 in any two previous calendar years
• Expected to earn at least $5,000 in the current year
• No age or minimum service hour requirements

Certain individuals may be excluded, such as union employees covered by a collective bargaining agreement and non-resident aliens with no U.S. source income.

Who contributes

Both employees and employers contribute to a SIMPLE IRA. Contributions are immediately 100% vested. Depending on plan design, employees may receive contributions and make salary deferrals on a traditional or Roth basis:

• Traditional: Contributions are excluded from income, grow tax deferred and are taxed as ordinary income when distributed.
• Roth: Employee salary deferrals and employer contributions are taxed as regular income, grow tax free, and qualified distributions are tax-free.

Employee contributions

Employees may defer up to 100% of compensation, subject to annual limits. Catch-up contributions are available for those age 50+, and beginning in 2025, enhanced catch-up limits may apply for individuals aged 60–63.

See Annual limits page for current contribution thresholds.

Employer contributions

Employer contributions are tax-deductible to the business. Employers must choose one of two required contribution methods:

• Match employee contributions up to 3% of compensation
• Contribute 2% of compensation for all eligible employees (up to the annual compensation limit)

Additional contribution options and considerations

• Employers may reduce the match rate from 3% to as low as 1% in no more than 2 out of 5 years.
• Optional nonelective contributions of up to 10% of compensation or $5,000 (whichever is less) may be made uniformly.
• Enhanced employee contribution limits of up to 110% of the normal limit may apply for employers with less than 25 employees or less than 100 provided they are offering higher match rates.
• SIMPLE IRAs may allow employer matches for qualified student loan payments.

Distributions, RMDs and plan loans 

Distributions follow traditional IRA rules. However, withdrawals, including rollovers and transfers, during the first two years of participation may be subject to a 25% penalty if taken before age 59½, and no exception applies. After two years, the standard 10% early withdrawal penalty applies.

If you elected to save in a Roth account, you will not have required minimum distributions as the original owner. Otherwise, you must generally begin taking required minimum distributions by April 1 the year after you turn 73. 

Participant loans are not permitted under this plan.

SIMPLE IRA deadlines

Plans must be established by Oct 1 of the current year (unless the business was formed after that date). Employee contributions are due by the business’s tax-filing deadline, including extensions. Salary deferrals must be deposited within 30 business days after the end of the month in which they were withheld.

Key characteristics summary

Comparing a SIMPLE IRA to other options

To compare SIMPLE IRAs with other retirement plan types, visit Workplace retirement plans for business owners.

Open a SIMPLE IRA 

A SIMPLE IRA can be a powerful tool for attracting and retaining employees while helping you and your team save for retirement. An Edward Jones Financial Advisor can help you evaluate whether a SIMPLE IRA fits your goals and guide you through setup and investment decisions.