SIMPLE IRA: rules, costs and examples

Overview

A SIMPLE IRA is an employer plan combining employee salary-reduction contributions with required employer contributions. It is not interchangeable with an ordinary personal IRA. Payroll setup, employee notices, and the employer’s chosen contribution formula are central to operating the plan.

Who is this for?

Employers considering a SIMPLE should check the eligibility conditions, employee count, other plans, and available payroll support. Employees should ask for the actual plan notice rather than estimate their limit from a generic online table. SECURE 2.0 created different limits for certain applicable plans, so two employers can legitimately quote different allowances.

Tax treatment

Pre-tax employee deferrals generally reduce current federal taxable income; distributions are generally taxable. Employer contributions follow plan requirements. Ask whether Roth SIMPLE contributions are supported by your provider and how they are reported. Federal income-tax treatment does not settle every payroll-tax or state-tax question.

Contribution rules

The general 2026 employee deferral limit is $17,000. Certain applicable SIMPLE arrangements have an $18,100 limit. General age-50 catch-up contributions are $4,000, with different $3,850 provisions for certain applicable plans; ages 60–63 can have a $5,250 catch-up. These are alternative rules, not amounts to add together indiscriminately. Employer matching or nonelective contributions are separate. Verify your plan notice and the IRS limit for that plan.

Investments and costs

A SIMPLE IRA provider determines available investments and fees. An employee should inspect the default holding and investment elections after payroll contributions begin. Salary deferrals reaching the account do not guarantee they are invested in the employee’s intended funds.

Withdrawals and restrictions

An early distribution during the first two years of participation can face a 25% additional tax rather than the usual 10%, unless an exception applies. The two-year period also restricts transfers and rollovers to other retirement arrangements. Record the actual participation start date before requesting a rollover.

Worked example and decision checklist

Hypothetical matching example: under a standard 3% matching election, a worker earning $40,000 who defers $1,200 could receive a $1,200 employer match. Deferring $400 would generally produce a $400 match under that formula. A 2% nonelective arrangement works differently and can fund eligible employees who make no deferral. Read the employer notice before inferring your match from this example.

Sources and scope

• SIMPLE IRA plan questions — IRS
• 2026 retirement limits — IRS
• Retirement plan rollovers — IRS

Updated October 21, 2026. Prepared with AI assistance; no independent professional review is claimed. Examples are hypothetical. Editorial policy and corrections.