What is a SIMPLE IRA?
Generally available to employers with 100 or fewer employees
A SIMPLE IRA under IRC §408(p) lets employees of employers with 100 or fewer employees defer up to $17,000 in 2026, or $18,100 in certain small-employer plans, plus catch-up contributions. The employer must either match deferrals dollar for dollar up to 3% of pay or make a 2% nonelective contribution for every eligible employee. The employer generally cannot maintain another retirement plan in the same year.
Reviewed by Ebot Mbi, CPA, EA · Last reviewed · Law and figures current as of September 17, 2026
Key takeaways
- 2026 deferral limit: $17,000, or $18,100 in plans that qualify for the higher SECURE 2.0 limit.
- Catch-ups: $4,000 at age 50+ in most plans; $5,250 at ages 60–63.
- Employer contribution is required: a 3% match (reducible to 1% in 2 of 5 years) or a 2% nonelective contribution.
- Only employers with 100 or fewer employees earning $5,000 or more can adopt one.
- Withdrawals within the first 2 years of participation can face a 25% additional tax.
What it is
SIMPLE stands for Savings Incentive Match Plan for Employees. Each employee has a SIMPLE IRA, contributes through salary deferrals, and receives a required employer contribution. The plan has no nondiscrimination testing and no annual Form 5500 filing, which makes it a common first retirement plan for small employers.
What the law says
IRC §408(p) defines a SIMPLE retirement account, sets the employer size limit, and requires the employer to make either matching or nonelective contributions. It also generally prohibits the employer from maintaining another qualified plan during a year in which contributions are made to a SIMPLE IRA. IRC §72(t)(6) increases the additional tax on early withdrawals to 25% during the first two years of participation.
IRS Notice 2025-67 sets the 2026 limits: $17,000 for the regular deferral limit, $18,100 for the higher limit available under SECURE 2.0, $4,000 for the general age-50 catch-up, and $5,250 for the ages 60–63 catch-up.
Requirements and tests
An employer and its plan must meet these requirements:
- 100 or fewer employees who received at least $5,000 in compensation in the prior year, with a grace period if the employer grows past the limit.
- No other retirement plan maintained in the same year, with limited exceptions, including a SECURE 2.0 rule allowing a mid-year replacement with a safe harbor 401(k).
- Eligibility for employees who earned at least $5,000 in any 2 prior years and are expected to earn $5,000 in the current year (less restrictive terms are allowed).
- A new plan established effective between January 1 and October 1, with a 60-day election period and annual notice to employees.
- Employer contributions of either a dollar-for-dollar match up to 3% of pay, which may be reduced to no less than 1% in no more than 2 of any 5 years with notice, or 2% of pay for every eligible employee.
- Timely deposit of deferrals and employer contributions.
How it works
Employees elect a deferral amount, which is withheld from pay and deposited to their SIMPLE IRAs. Deferrals are excluded from income tax withholding but are still subject to Social Security and Medicare tax. The employer deducts its contributions. Employers with 25 or fewer employees automatically qualify for the higher $18,100 limit; employers with 26 to 100 employees can use it only if they provide a 4% match or 3% nonelective contribution. Employers may also make additional nonelective contributions, up to the lesser of 10% of compensation or $5,000 per employee, if made uniformly.
For a self-employed owner, the match is based on net earnings from self-employment. Roth SIMPLE contributions are permitted under SECURE 2.0 if the plan and financial institution allow them.
Choosing between the match and the 2% contribution affects cost. A match costs only for employees who defer, while the 2% contribution goes to every eligible employee whether or not they defer. Employers must notify employees of the choice before the 60-day election period begins.
Contributions for employees follow the IRA rules once deposited: employees choose investments, can move money to another SIMPLE IRA at any time, and own all contributions immediately. Deferrals must be deposited as soon as they can reasonably be separated from the employer's assets, and no later than 30 days after the end of the month in which they were withheld. Employer matching contributions are due by the return due date, including extensions, for the year.
Assumptions: Tax year 2026; employer with 30 employees that does not use the higher SECURE 2.0 limit.; One employee, age 40, earns $60,000 and defers the maximum $17,000.; Ten eligible employees each earn $60,000, and all defer at least 3% of pay.; Employer chooses the 3% match; the 2% nonelective option is shown for comparison.
| Employee deferral | $17,000 |
|---|---|
| Employer match (3% × $60,000) | $1,800 |
| Total contributions for that employee | $18,800 |
| Employer match for ten employees | $18,000 |
| Alternative: 2% nonelective for ten employees | $12,000 |
In this example the 3% match costs $18,000 a year for ten employees who all defer, compared with $12,000 under the 2% nonelective option.
Illustration only; not a projection of your results.
Risks and IRS scrutiny
Common errors include maintaining another plan in the same year, excluding eligible employees, missing the election notice, depositing deferrals late, and miscalculating the match for self-employed owners. Corrections under the IRS programs may require the employer to make up missed contributions with earnings.
Employees who withdraw money within two years of first participating face a 25% additional tax unless an exception applies, and rollovers out of a SIMPLE IRA during that period are restricted.
Who it is not for
A SIMPLE IRA is not available to employers above the size limit and is a poor fit for employers that want another plan at the same time, owners who want deferrals above the SIMPLE limit, or employers that cannot afford a required contribution in every year. Businesses expecting rapid hiring should consider how they will transition to a 401(k).
How ebotCPA helps
We confirm eligibility, compare the match with the 2% option across your staff, check whether the higher limit applies, and set up payroll so deferrals and employer contributions are deposited on time.
Book a $497 Case Analysis to have Ebot Mbi, CPA, EA review your facts before you act.
Frequently asked questions
What is the SIMPLE IRA contribution limit for 2026?
$17,000 in most plans, or $18,100 in plans that qualify for the higher SECURE 2.0 limit, plus catch-up contributions for employees age 50 or older.
Is the employer match required in a SIMPLE IRA?
Yes. The employer must either match up to 3% of pay (reducible to 1% in 2 of 5 years) or contribute 2% of pay for every eligible employee.
Can I have a SIMPLE IRA and a 401(k) at the same time?
Generally no. The employer cannot maintain another retirement plan in the same year, although SECURE 2.0 allows a mid-year replacement with a safe harbor 401(k) under specific conditions.
When is the deadline to set up a SIMPLE IRA?
A new plan can generally be set up effective any date from January 1 through October 1 of the year.
Have facts like these?
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