SIMPLE IRA is a small business retirement plan with tax benefits and easy setup. Learn more below!
What is a SIMPLE IRA?
A SIMPLE IRA (Savings Incentive Match Plan for Employees Individual Retirement Account) is a retirement plan designed specifically for small businesses with 100 or fewer employees. It helps both employers and employees save for retirement through a simple, cost-effective system.
How SIMPLE IRA Works
There are two contribution methods in a SIMPLE IRA plan:
- Non-elective contribution: Employers contribute 2% of each eligible employee’s compensation, regardless of whether the employee contributes.
- Matching contribution: Employers match employee contributions dollar-for-dollar, up to 3% of the employee’s compensation.
Eligibility Requirements
Employers can set their own eligibility rules, but the most restrictive standard is:
- Earned at least $5,000 in any two previous years
- Expected to earn $5,000 in the current year
Employers can choose to apply more flexible income requirements if desired.
Contribution Limits (2024)
In 2024, the contribution limit is $16,000. Employees aged 50 and older can contribute an additional $3,500, totaling $19,500.
Benefits of SIMPLE IRA
- Easy setup and administration
- Low administrative costs
- Tax-deductible employer contributions
Disadvantages of SIMPLE IRA
The biggest limitation is the lower contribution cap compared to SEP IRA or 401(k).
Comparison Table
| Feature | SIMPLE IRA | SEP IRA | 401(k) |
|---|---|---|---|
| Who contributes | Employer & Employee | Mostly Employer | Employer & Employee |
| Contribution Limit | $16K–$19.5K | $69K | $69K–$76.5K |
| Setup Complexity | Easy | Easy | Moderate–Complex |
| Tax Benefit | Employer deduction | Employer deduction | Employer/Employee deduction |
Conclusion
SIMPLE IRA is a smart retirement plan choice for small businesses seeking affordability and simplicity. Compare it with SEP IRA or 401(k) to find the best fit for your team and your business goals.
