SIMPLE IRA
A retirement plan for small businesses with 100 or fewer employees. Lower contribution limits than a 401(k) but much simpler to run, with mandatory employer contributions.
What is a SIMPLE IRA?
A Savings Incentive Match Plan for Employees (SIMPLE) IRA is a retirement plan built for small businesses with 100 or fewer employees. It gives business owners an easy path to offer a retirement benefit without the complexity or cost of a full 401(k).
Key features
- Employee contributions: workers defer pre-tax salary, up to an annual limit set by the IRS (between the IRA limit and the 401(k) limit)
- Mandatory employer contribution: either a 3% match on employees who contribute, or a 2% non-elective contribution for all eligible employees
- Tax-deferred growth: investments grow without annual tax
- Simpler than 401(k): no annual non-discrimination testing, no Form 5500 filing, lower administrative cost
- Early withdrawal penalty: 25% (higher than most plans) in the first two years of participation, 10% after
- Cannot combine with another retirement plan: the business must pick SIMPLE IRA or 401(k), not both
When it makes sense
For a business owner who wants a basic retirement benefit for employees without hiring a plan administrator, the SIMPLE IRA is the quickest path. Once the business grows past 100 employees or wants higher contribution limits, moving to a full 401(k) becomes the next step.