3706 / What is a SIMPLE IRA plan?

A SIMPLE (which stands for Savings Incentive Match Plan for Employees) IRA plan is a simplified, tax-favored retirement plan offered by small employers that provides employees with a simplified method to contribute toward their retirement savings. Employees may choose to make salary reduction contributions (aka elective deferrals) and the employer is required to make either matching or nonelective contributions. Contributions are made to an IRA set up for each employee that meets certain vesting, participation, and administrative requirements described below.¹

A SIMPLE IRA plan may permit contributions only under a qualified salary reduction arrangement, which is defined as a written arrangement of an “eligible employer” (defined below) under which:

(1)   employees eligible to participate may elect to receive payments in cash or
contribute them directly to a SIMPLE IRA per a salary deferral;

(2)   the amount to which such an election applies must be expressed as either a percentage of compensation or as a dollar amount, but in any case cannot exceed $16,500 per year (for 2025), up from $16,000 per year for 2024²);

(3)   the employer must make matching contributions or nonelective contributions to the account according to one of the formulas described in Q 3707; and

(4)   no contributions other than those described in (1) and (3) may be made to the account.³

Certain lower income taxpayers may be eligible to claim the saver’s credit for elective deferrals to a SIMPLE IRA ( Q 3648).

Elective Deferral and Catch-up Contributions

The amount contributed via an elective deferral cannot exceed $16,500 in 2025.⁴ A SIMPLE IRA plan, however, may permit catch-up contributions by participants who reach age 50 (or over) by the end of the plan year.⁵ The limit on catch-up contributions to SIMPLE IRAs is the lesser of (a) a specified dollar limit, or (b) the excess (if any) of the participant’s compensation over any other elective deferrals for the year made without regard to the catch-up limits.⁶ The dollar limit is $3,500 in 2023-2025 and $3,000 in 2016-2022.⁷