A Simple IRA (Savings Incentive Match Plan for Employees Individual Retirement Account) is a type of retirement savings plan designed for small businesses (with 100 or fewer employees) and their employees.
Key Features:
- Easy to set up and manage (compared to 401(k)s).
- Funded by both employee salary deferrals and employer contributions.
- Employees can contribute through payroll deductions.
- Employers must contribute, either:
- A match of up to 3% of the employee’s salary, or
- A non-elective contribution of 2% of each eligible employee’s salary (even if the employee doesn't contribute).
2025 Contribution Limits:
- Employees can contribute up to $16,000/year (plus an extra $3,500 if age 50+).
- Employers add their contributions on top of that.
Restrictions:
- No loans allowed (unlike some 401(k) plans).
- Early withdrawals (before age 59½) typically come with a 10% penalty — or 25% if taken within the first 2 years of participation.
A Simple IRA is best for Small Business Owners who want a low-cost, tax-deferred way to help themselves and employees save for retirement.
