A SIMPLE IRA is 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 deferred pre-tax salary contributions, while the employer makes matching or non-elective contributions (up to 3%). Contributions to a SIMPLE IRA plan cannot be repurposed to traditional IRA plan.
Starting in 2024, employees will be able to contribute an additional 10% on top of the existing limits, so long as their employer has less than 25 employees or has 26 to 100 employees and agrees to a 4% employer match or 3% nonelective contribution. This was done as part of the Secure 2.0 act.
SIMPLE IRAs are ideally suited as a start-up retirement savings plan for small employers and business; 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 their simplified setup and much lower administration overhead.
In order to establish a SIMPLE IRA, the business must have 100 or fewer employees and not have any other type of retirement plan in place.
SIMPLE IRA Contribution Limits
The current and recent annual employee deferral amounts (contributions) from their salary, as set by the IRS, is shown in the table below.
Employees over age 50 allowed to make a catch-up contribution of up to $3,500 in 2023 and 2024.
|Year||Contribution Limit (Age under 50)||Contribution Limit (Over 50)|
Assuming your employer offers a SIMPLE IRA, you can generally contribute if you expect to or earned at least $5,000 in the last 2 years from the employer sponsoring your SIMPLE IRA.
Employees with multiple employers need to be aware that contributions under a SIMPLE IRA plan count toward the overall annual limit on elective deferrals they may make to other employer sponsored tax advantaged retirement plans.
Employer Matching and Non-Elective Contributions
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 $330,000 in 2023 and $340,000 in 2024.
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.