Simple IRA

Another IRA-Based alternative is called a SIMPLE IRA plan (SIMPLE stands for Savings Incentive Match Plan for Employees).  Perhaps the best way to describe the SIMPLE IRA plan is as the little brother of the more robust (but more costly) 401(k) plan.  Much like the traditional 401(k) plan, the SIMPLE IRA Plan allows for both employer contributions as well as employee salary deferral contributions. Unfortunately, the salary deferral limit for SIMPLE IRA Plans is lower than the salary deferral limit for 401(k) plans (as is the overall, aggregate plan contribution limit).

Nonetheless, the SIMPLE IRA afford employers and employees with many of the same benefits as 401(k) plans, typically at a fraction of the cost.




Employer Eligibility

No more than 100 employees

Typically cannot maintain a SIMPLE IRA if business has over 100 employees with compensation over $5,000

Maximum Age Restriction


Cannot impose age restriction as with some other types of plans

Maximum Service Restriction

2 prior years

May exclude employees who have not worked for business during at least 2 prior years

Annual Notifications/Reporting

Employee Notification

No federal filing such as Form 5500

Employee notification requirements

Funding Options

Employer and Employee

In addition to employee deferrals, employer must typically contribute 2% (nonelective) or 100% match (up to 3%)

Maximum Contribution (2016)


$20,800* (age 50+)

The maximum employee deferral for 2016 is $12,500 ($15,500 for those age 50 or older)

Special Features


Contributions made to SIMPLE IRAs individually maintained by each plan participant

Withdrawal Restrictions


Employer cannot impose any restrictions on participant’s ability to withdraw funds once contributed