A Savings Incentive Match Plan for Employees Individual Retirement Account, commonly known as a SIMPLE IRA, is a retirement savings plan designed for small businesses and self-employed individuals. It offers a straightforward way for employers and employees to contribute toward retirement.
What is a SIMPLE IRA?
A SIMPLE Individual Retirement Account (IRA) refers to a tax-deferred retirement plan that guarantees contributions from both employees and employers to a traditional IRA set up for employees. This refers to the best type of retirement plan for small businesses, with a maximum of 100 employees. The plan itself is designed to be “easy to administer,” in contrast to the more complex 401(k) arrangements. Contributions to these accounts are pretax, in that they reduce your taxable income for the year, and grow your investments tax-deferred until retirement.
SIMPLE IRA contribution limits for 2025
The following are the 2025 SIMPLE IRA contribution limits:
- Contributions by employees: The maximum contribution by the employees is $16,500.
- Catch-up contributions: Members aged 50 or older can make catch-up contributions. The catch-up contribution limit is $3,500 for the 50-59- and 64-and-over age ranges, bringing the total contribution limit to $20,000. For members aged 60-63, the catch-up contribution limit is even higher, at $5,250, bringing the total contribution limit to $21,750.
Employer contribution requirements
Employers have to contribute to the SIMPLE IRAs of their employees in one of two ways:
- Matching contributions: Match employee contributions dollar-for-dollar up to 3% of the employee’s compensation.
- Nonelective contributions: Contribute 2% of each participating employee’s compensation, regardless of whether the employee contributes. For 2025, the compensation limit considered for these contributions is $350,000.
For any non-elective contributions, a 2% contribution is made from each eligible employee’s salary without regard to the employee contribution. The compensation limit to be considered for contributions in 2025 is $350,000.
Are there income limits for participating in a SIMPLE IRA?
SIMPLE IRAs do not have income limitations on participation like Roth IRAs. Employees who have earned $5,000 or more in any two of the preceding years and are expected to earn $5,000 or more during the current year can participate irrespective of their total earnings.
Additional considerations
- Several retirement plans: If you take part in a retirement plan sponsored by another employer, the total amount you can contribute across all such plans will be subject to an aggregate limit. For 2025, this limit combines $23,500 for individuals under age 50, $31,000 for those aged 50 to 59 and 64 or over, and $34,750 for those aged 60 to 63.
- Tax benefits: contributing to a SIMPLE IRA on a pre-tax basis lowers your taxable income for the year. However, any distributions taken in retirement will be taxed as ordinary income.
When you understand everything about a SIMPLE IRA, you will be able to make informed decisions regarding your retirement savings strategy and claim all advantages associated with this plan.
