The SIMPLE IRA Matching Rules for Employers and Employees

SIMPLE IRAs, or Savings Incentive Match Plans for Employees, are designed to help small businesses with less than 100 employees save for retirement. Employers and employees can contribute to a SIMPLE IRA, which is similar to a Traditional IRA. Employers can offer this plan to their employees as an additional benefit.

As mentioned, the SIMPLE IRA is designed specifically for small businesses with 100 or fewer employees, including business owners and self-employed individuals.

Employers must make annual contributions to the plan, which can be done in one of two ways:

• Matching contributions: Match employee contributions up to 3% of their compensation.
• Nonelective contributions: Contribute 2% of each eligible employee's compensation, regardless of whether the employee makes contributions.

The employee contribution limits for a SIMPLE IRA plan in 2025 are as follows:

• Employees under age 50: $16,500
• Employees age 50 and older: $20,000
  (includes a $3,500 catch-up contribution, increased from $3,000 in 2024)

Enhanced Contribution (Secure 2.0 Act):

For employers with 25 or fewer employees, higher contribution limits apply in 2025:

• Employee contribution limit: $17,600
• Catch-up contribution (age 50–59 and 64+): $3,850
• Catch-up contribution (age 60–63): $5,250 (super catch-up)

Employer Contribution

Employers can contribute to the employee either on a matching or non-elective basis.

Dollar-for-dollar matching

Employers can match their employees' contributions dollar-for-dollar up to 3%. However, under Secure Act 2.0, employers with 26 to 100 employees may allow employees to make higher contributions, provided the employer chooses to match up to 4% of employee compensation. Employers can also choose to reduce their match rate to less than 3% (provided it's at least 1%) for up to 2 out of every 5 years.

Non-elective contributions

Instead of making matching contributions, an employer may choose to make a non-elective contribution for eligible employees.

Standard non-elective contribution

Employers may contribute 2% of each eligible employee’s compensation, regardless of whether the employee makes salary deferral contributions.

Enhanced non-elective contribution under the SECURE 2.0 Act

For employers with 26 to 100 employees, a higher non-elective contribution of up to 3% of compensation may be permitted when employees are allowed to make increased salary deferrals under SECURE 2.0. This enhanced non-elective contribution applies only if the employer adopts the applicable plan provisions.

The employee contribution limits for a SIMPLE IRA Plan in 2026 are as follows:

• Employees under age 50: $17,000
  (up from $16,500 in 2025)
• Employees age 50 and older: $21,000
  (includes a $4,000 catch-up contribution, increased from $3,500 in 2025)

Enhanced limits under the SECURE 2.0 Act (small employers)

For employers with 25 or fewer employees, higher contribution limits apply in 2026:

• Employee contribution limit: $18,100
• Higher Catch-up (Age 50-59 or 64+): $18,100 + $3,850 (Total: $21,950)
• Special Higher Catch-up (Ages 60-63): $18,100 + $5,250 (Total: $23,350)

Employer contributions for 2026

Employers sponsoring a SIMPLE IRA plan must make contributions using either the matching method or the non-elective method. The chosen method applies to the entire plan year.

Matching contributions

• Standard matching contributionEmployers may match employee salary deferrals dollar-for-dollar up to 3% of the employee’s compensation.
• Enhanced matching contribution under the SECURE 2.0 Act Employers with 26 to 100 employees may allow higher employee salary deferrals and choose to match contributions up to 4% of employee compensation, provided the plan adopts the applicable SECURE 2.0 provisions.
• Reduced match option Employers may reduce the matching rate to as low as 1% of compensation for no more than 2 out of every 5 years, as permitted under IRS rules.

Non-elective contributions

Instead of matching employee contributions, an employer may choose to make a non-elective contribution for all eligible employees.

• Standard non-elective contribution Employers may contribute 2% of each eligible employee’s compensation, regardless of whether the employee makes salary deferral contributions.
• Enhanced non-elective contribution under the SECURE 2.0 ActFor employers with 26 to 100 employees, a higher non-elective contribution of up to 3% of compensation may be permitted when the plan allows increased employee deferrals under SECURE 2.0.

The withdrawal regulations for a SIMPLE IRA are identical to those for regular IRA withdrawals. You pay taxes on your money when it leaves your account, and if you withdraw before the age of 59½ for no qualified cause, such as the necessity to pay a major medical cost, you must also pay a 10% early withdrawal penalty. However, unlike standard IRAs and most other retirement accounts, SIMPLE IRAs have a 25% early withdrawal penalty if you remove funds during the first two years of ownership.

Exceptions to Additional Taxes

If you are 59½ or older, you can withdraw money from your SIMPLE IRA without paying additional taxes. You also don’t have to pay any additional taxes if, for example:

• Your withdrawal is not more than:
  • Your unreimbursed medical expenses that exceed 10% of your adjusted gross income (7.5% if your spouse is age 65 or older),
  • Your cost for your medical insurance while unemployed,
  • Your cost for your medical insurance while unemployed,
  • The amount to buy, build, or rebuild a first home
• Your withdrawal is in the form of an annuity
• Your withdrawal is a qualified reservist distribution
• You are disabled
• You are the beneficiary of a parted SIMPLE IRA owner
• The withdrawal is the result of an IRS levy
• The withdrawal is the result of an IRS levy

A SIMPLE IRA rollover transfers funds from an existing SIMPLE IRA to another retirement account, such as a Traditional IRA or a 401(k) plan with a new employer. This allows for the consolidation of retirement savings into a single account or the transition of funds to an account with more investment options, potentially higher returns, or lower fees, thereby optimizing retirement savings management.

Transfers from SIMPLE IRAs

You have the option to transfer money in a tax-free rollover from your SIMPLE IRA to another IRA (except a Roth IRA) or an employer-sponsored retirement plan like a 401(k), 403(b), or governmental 457(b) plan. However, for the first two years after you start participating in your employer's SIMPLE IRA plan, you can only transfer money to another SIMPLE IRA. Transferring it to a different type of account during this period is considered a withdrawal. In that case, you would need to:

• Include the amount in your gross income, and
• Pay an additional 25% tax on this amount, unless you are at least 59½ years old at the time of the transfer or meet other exceptions to the extra tax.

After the initial 2-year period, you have more flexibility. You can make tax-free rollovers from your SIMPLE IRA to other types of non-Roth IRAs or to an employer-sponsored retirement plan. This allows for better management of your retirement funds. Additionally, you can roll over the money into a Roth IRA after the 2-year period, but you must include any previously untaxed money rolled over in your income. This means you will pay taxes on that amount at your current income tax rate.

Transfers to SIMPLE IRAs

Before 2015, a SIMPLE IRA could only accept transfers from another SIMPLE IRA. However, a new law in 2015 expanded the eligibility for transfers to include traditional and SEP IRAs, as well as employer-sponsored retirement plans such as a 401(k), 403(b), or 457(b) plan. Nonetheless, there are certain restrictions to be aware of:

• SIMPLE IRAs cannot accept rollovers from Roth IRAs or Roth accounts in employer-sponsored plans.
• This change applies explicitly to rollovers made after the two-year period starting from the date you initially participated in your employer’s SIMPLE IRA plan.
• The new law only applies to transfers to SIMPLE IRAs made after December 18, 2015, when the law was enacted. This clear timeline ensures you have the most accurate information for your financial planning.
• Transferring from a Traditional IRA, SIMPLE IRA, or SEP IRA to a SIMPLE IRA is limited to one rollover per year.

You can start a SIMPLE IRA plan anytime between January 1 and October 1 of a given year, as long as this is the first time you have had a SIMPLE IRA plan. If your business is new and was created after October 1, you can still set up a SIMPLE IRA plan for that year, but you need to do it as soon as possible after your business starts. If you have had a SIMPLE IRA plan in the past, you can only start a new SIMPLE IRA plan on January 1 of the year. Additionally, a SIMPLE IRA plan cannot be effective before the date you officially adopt the plan.