This article was last updated on October 26
A SIMPLE IRA is also a small business IRA-based plan with a simplified method for employers to make direct contributions (via salary reductions) toward their employees’ retirement and their own retirement. Employees may choose (not mandatory) to make regular contributions and the employer makes matching or non-elective contributions. No other contributions may be made under a SIMPLE IRA plan and any contributions made to a SEP IRA plan can not be repurposed to another or traditional IRA plan.
SIMPLE IRAs are ideally suited as a start-up retirement savings plan for small employers who do not currently sponsor a 401k retirement or SEP IRA plan. The main advantage of a Simple IRA to other tax advantaged retirement plans is the much lower administration costs. In order to establish a SIMPLE IRA, the business must have 100 or fewer employees and it also cannot have any other type of retirement plan in place.
Contribution Limits: The latest annual employee deferral amount per the IRS is $12,500 for 2017 and 2018, unchanged from 2016. Employees over age 50 allowed to make a catch-up contribution of up to $3,000. Contributions under a SIMPLE IRA plan that count toward the overall annual limit on elective deferrals an employee may make to tax advantaged retirement plans.
Employers are generally required to match each employee’s salary reduction contribution on a dollar-for-dollar basis up to 3% of the employee’s compensation. Or if no matching is in place, an employer can make non-elective contributions of 2% of the employee’s compensation up to the annual limit of $270,000 for 2017 ($265,000 for 2016). If an employer chooses to make non-elective contributions, they must make them for all eligible employees whether or not they make salary reduction contributions.
The other very popular small business retirement plan is the SEP IRA. See this article for more details and the latest information on SEP IRA limits and eligibility.