What Is a SIMPLE IRA?

A SIMPLE IRA (Savings Incentive Match Plan for Employees) is a retirement savings plan designed for small businesses with 100 or fewer employees that want to offer employees a tax-advantaged retirement benefit without the administrative complexity of a 401(k). Employees can contribute up to $16,000 in 2024 ($19,500 for those 50 or older), and employers are required to either match employee contributions dollar-for-dollar up to 3% of compensation or make a 2% nonelective contribution for all eligible employees regardless of whether they contribute. Like a SEP-IRA, a SIMPLE IRA is relatively easy to establish with minimal paperwork and no annual IRS filings. Withdrawals from a SIMPLE IRA are taxed as ordinary income, and early withdrawals (before age 59½) are subject to a 10% penalty — which jumps to 25% if taken within the first two years of participating in the plan. SIMPLE IRAs are a good middle ground for small businesses that want to offer a meaningful retirement benefit without the compliance burden of a full 401(k) plan.