Talk to an Advisor


A SIMPLE IRA, which stands for Savings Incentive Match Plan for Employees Individual Retirement Account, is a type of retirement savings plan in the United States that allows both employees and employers to make contributions. It’s particularly popular among small businesses due to its simplicity and lower costs compared to other retirement plans like 401(k)s.

Here’s a list of the important characteristics of a SIMPLE IRA:

  1. Eligibility: Employers with 100 or fewer employees who receive at least $5,000 in compensation from the employer are eligible to participate.
  2. Employee Contributions: Employees can elect to make salary deferral contributions to their SIMPLE IRA accounts. The contribution limit is lower than that of a 401(k). As of 2022, the limit is $14,000 for those under 50, and an additional $3,000 catch-up contribution is allowed for those 50 and older.
  3. Employer Contributions: Employers are required to make contributions. They can either match employee contributions up to 3% of the employee’s compensation or make a 2% non-elective contribution to all eligible employees regardless of whether they make contributions.
  4. Vesting: Contributions to a SIMPLE IRA are immediately 100% vested, meaning that employees own all the funds in their accounts right away.
  5. Investment Choices: Funds in a SIMPLE IRA can be invested in a range of options such as stocks, bonds, mutual funds, and exchange-traded funds (ETFs).
  6. Distribution and Withdrawal: Distributions, including those due to retirement, disability, or death, are taxed as ordinary income. Early withdrawals, before age 59½, may be subject to a 10% penalty. Additionally, if the withdrawal occurs within the first two years of participation, the penalty could be as high as 25%.
  7. Simplicity: As the name suggests, SIMPLE IRAs are easier to set up and manage compared to 401(k) plans, making them appealing to small businesses.
  8. Flexibility: Employees have the flexibility to choose and manage their investment options, and they can also roll over funds to another IRA.

SIMPLE IRAs are a valuable tool in the IRA investment industry, catering specifically to small businesses and their employees, facilitating retirement savings with less administrative complexity. Note that rules and limits can change, and it’s essential to consult current IRS guidelines or a financial advisor for the most accurate and up-to-date information.