SIMPLE IRAs

The Savings Incentive Match Plan for Employees (SIMPLE) IRA is a tax-advantaged retirement plan designed specifically for small businesses with 100 or fewer employees. It offers an easy and cost-effective way for employers to help their teams save for retirement—without the administrative burden of a traditional 401(k) plan.

For both business owners and employees, the SIMPLE IRA strikes a balance between accessibility and meaningful retirement savings potential. While the contribution limits are lower than other qualified plans, the setup and maintenance are, true to its name, simple.

Contributions & Eligibility

In 2025, employees can contribute up to $16,500 to a SIMPLE IRA, with an additional $3,500 catch-up contribution allowed for those age 50 or older. These contributions are made on a pre-tax basis, reducing taxable income in the year they’re made. All employees who earned at least $5,000 in any two preceding years—and are expected to earn at least $5,000 in the current year—must be allowed to participate in the plan.

Employers are required to make either:

A dollar-for-dollar match of up to 3% of compensation (only for employees who contribute),
or
A 2% nonelective contribution for all eligible employees, regardless of whether they contribute.

This structure keeps costs predictable and encourages participation, while giving small employers a straightforward way to support employee retirement readiness.

Taxation

Like Traditional IRAs and 401(k)s, SIMPLE IRAs are funded with pre-tax dollars and grow tax-deferred. Distributions in retirement are taxed as ordinary income, and early withdrawals (before age 59½) are subject to a 10% penalty. But there’s a catch: withdrawals within the first two years of participation are subject to a 25% early withdrawal penalty, unless an exception applies. This rule is unique to SIMPLE IRAs and is important to keep in mind—especially for younger participants or those changing jobs shortly after enrolling.

Why consider a SIMPLE IRA?

The SIMPLE IRA is often a great fit for small businesses that want to offer retirement benefits without the complexity of a 401(k). It’s easy to set up, has no annual IRS filing requirements, and encourages employees to participate with straightforward employer contributions. It’s also a useful tool for solo entrepreneurs who have at least one eligible employee (which would disqualify them from a Solo 401(k) or a more flexible SEP IRA structure). For owners seeking a way to make meaningful retirement contributions while also supporting their team, the SIMPLE IRA is a low-cost, high-impact option. At RSS, we frequently recommend SIMPLE IRAs to small business clients who value ease of use, cost predictability, and tax efficiency. As the business grows, the plan can be a stepping stone to a more robust retirement offering in the future. Whether you’re just getting started or looking to formalize your company’s retirement strategy, the SIMPLE IRA remains a powerful and often underutilized planning tool.