SIMPLE IRA Contribution Limits for Employers & Employees
A SIMPLE IRA, or Savings Incentive Match Plan for Employees, is a way for self-employed individuals and small business employers to set up a retirement plan.
It’s one of a number of tax-advantaged retirement plans that may be available to those who are self-employed, along with solo 401(k)s, and traditional IRAs. These plans share a number of similarities. Like 401(k)s, SIMPLE IRAs are employer-sponsored (if you’re self-employed, you would be the employer in this case), and like other IRAs they give employees some flexibility in choosing their investments.
SIMPLE IRA contribution limits are one of the main differences between accounts: meaning, how much individuals can contribute themselves, and whether there’s an employer contribution component as well.
Here’s a look at the rules for SIMPLE IRAs.
SIMPLE IRA Basics
SIMPLE IRAs are a type of employer-sponsored retirement account. Employers who want to offer one cannot have another retirement plan in place already, and they must typically have 100 employees or less.
Employers are required to contribute to SIMPLE IRA plans, while employees can elect to do so, as a way to save for retirement.
Employees can usually participate in a SIMPLE IRA if they have made $5,000 in any two calendar years before the current year, or if they expect to receive $5,000 in compensation in the current year.
An employee’s income doesn’t affect SIMPLE IRA contribution limits.
💡 Quick Tip: Investment fees are assessed in different ways, including trading costs, account management fees, and possibly broker commissions. When you set up an investment account, be sure to get the exact breakdown of your “all-in costs” so you know what you’re paying.
SIMPLE IRA Contribution Limits, 2023 and 2024
Employee contributions to SIMPLE IRAs are made with pre-tax dollars. They are typically taken directly from an employee’s paycheck, and they can reduce taxable income in the year the contributions are made, often reducing the amount of taxes owed.
Once deposited in the SIMPLE IRA account, contributions can be invested, and those investments can grow tax deferred until it comes time to make withdrawals in retirement. Individuals can start making withdrawals penalty free at age 59 ½. But withdrawals made before then may be subject to a 10% or 25% early withdrawal penalty.
Employee contributions are capped. For 2023, contributions cannot exceed $15,500 for most people. For 2024, it’s $16,000. Employees who are age 50 and over can make additional catch-up contributions of $3,500 for 2023 and 2024, bringing their total contribution limit to $19,000 in 2023 and $19,500 in 2024.
See the chart below for SIMPLE IRA contribution limits for 2023 and 2024.
| 2023 | 2024 | |
|---|---|---|
| Annual contribution limit | $15,500 | $16,000 |
| Catch-up contribution for age 50 and older | $3,500 | $3,500 |
Employer vs Employee Contribution Limits
Employers are required to contribute to each one of their employees’ SIMPLE plans each year, and each plan must be treated the same, including an employer’s own.
There are two options available for contributions: Employers may either make matching contributions of up to 3% of employee compensation — or they may make a 2% nonelective contribution for each eligible employee.
If an employer chooses the first option, call it option A, they have to make a dollar-for-dollar match of each employee’s contribution, up to 3% of employee compensation. (If the employer chooses option B, the nonelective contribution, this requirement doesn’t apply.) An employer can offer smaller matches, but they must match at least 1% for no more than two out of every five years.
In option A, if an employee doesn’t make a contribution to their SIMPLE account, the employer does not have to contribute either.
In the second option, option B: Employers can choose to make nonelective contributions of 2% of each individual employee’s compensation. If an employer chooses this option, they must make a contribution whether or not an employee makes one as well.
Contributions are limited. Employers may make a 2% contribution up to $330,000 in employee compensation for 2023, and up to $345,000 in employee compensation for 2024.
(The 3% matching contribution rule for option A is not subject to this same annual compensation limit.)
Whatever contributions employers make to their employees’ plans are tax deductible. And if you’re a sole proprietor you can deduct the employer contributions you make for yourself.
See the chart below for employer contribution limits for 2023 and 2024.
| 2023 | 2024 | |
|---|---|---|
| Matching contribution | Up to 3% of employee contribution | Up to 3% of employee contribution |
| Nonelective contribution | 2% of employee compensation up to $330,000 | 2% of employee compensation up to $345,000 |
SIMPLE IRA vs 401(k) Contribution Limits
There are other options for employer-sponsored retirement plans, including the 401(k), which differs from an IRA in some significant ways.
Like SIMPLE IRAs, 401(k) contributions are made with pre-tax dollars, and money in the account grows tax deferred. Withdrawals are taxed at ordinary income tax rates, and individuals can begin making them penalty-free at age 59 ½.
Contribution limits for 401(k)s are much higher than for SIMPLE IRAs. In 2023, individuals could contribute up to $22,500 to their 401(k) plans. Plan participants age 50 and older could make $7,500 in catch-up contributions for a total of $30,000 per year. In 2024, individuals can contribute $23,000 to their 401(k), and those 50 and older can make $7,500 in catch-up contributions for a total of $30,500.
Employers may also choose to contribute to their employees’ 401(k) plans through matching contributions or non-elective contributions. Employees often use matching contributions to incentivize their employees to save, and individuals should try to save enough each year to meet their employer’s matching requirements.
Employers may also make nonelective contributions regardless of whether an employee has made contributions of their own. Total employee and employer contributions could equal up to $66,000 in 2023, or 100% of an employee’s compensation, whichever is less. For those aged 50 and older, that figure jumped to $73,500. In 2024, total employee and employer contributions are $69,000, or $76,500 for those 50 and up.
As a result of these higher contribution limits, 401(k)s can help individuals save quite a bit more than they could with a SIMPLE IRA. See chart below for a side-by-side comparison of 401(k) and SIMPLE IRA contribution limits.
| SIMPLE IRA 2023 | SIMPLE IRA 2024 | 401(k) 2023 | 401(k) 2024 | |
|---|---|---|---|---|
| Annual contribution limit | $15,500 | $16,000 | $22,500 | $23,000 |
| Catch-up contribution | $3,500 | $3,500 | $7,500 | $7,500 |
| Employer Contribution | Up to 3% of employee contribution, or 2% of employee compensation up to $330,000 | Up to 3% of employee contribution, or 2% of employee compensation up to $345,000 | Matching and nonelective contributions up to $66,000 | Matching and nonelective contributions up to $69,000. |
💡 Quick Tip: The advantage of opening a Roth IRA and a tax-deferred account like a 401(k) or traditional IRA is that by the time you retire, you’ll have tax-free income from your Roth, and taxable income from the tax-deferred account. This can help with tax planning.
SIMPLE IRA vs Traditional IRA Contribution Limits
Individuals who want to save more in tax-deferred retirement accounts than they’re able to in a SIMPLE IRA alone can consider opening an IRA account. Regular IRAs come in two flavors: traditional and Roth IRA.
Traditional IRAs
When considering SIMPLE vs. traditional IRAs, the two actually work similarly. However, contribution limits for traditional accounts are quite a bit lower. For 2023, individuals could contribute $6,500, or $7,500 for those 50 and older. In 2024, individuals can contribute $7,000, or $8,000 for those 50 and older.
That said, when paired with a SIMPLE IRA, individuals could make $22,000 in total contributions in 2023, which is almost as much as with a 401(K). In 2024, they could make $23,000 in total contributions, which is the same as a 401(k).
Roth IRAs
Roth IRAs work a little bit differently.
Contributions to Roths are made with after-tax dollars. Money inside the account grows-tax free and individuals pay no income tax when they make withdrawals after age 59 ½. Early withdrawals may be subject to penalty. Because individuals pay no income tax on withdrawals in retirement, Roth IRAs may be a consideration for those who anticipate being in a higher tax bracket when they retire.
Roth contributions limits are the same as traditional IRAs. Individuals are allowed to have both Roth and traditional accounts at the same time. However, total contributions are cumulative across accounts.
See the chart for a look at SIMPLE IRA vs. traditional and Roth IRA contribution limits.
| SIMPLE IRA 2023 | SIMPLE IRA 2024 | Traditional and Roth IRA 2023 | Traditional and Roth IRA 2024 | |
|---|---|---|---|---|
| Annual contribution limit | $15,500 | $16,000 | $6,500 | $7,000 |
| Catch-up contribution | $3,500 | $3,500 | $1,000 | $1,000 |
| Employer Contribution | Up to 3% of employee contribution, or 2% of employee compensation up to $330,000 | Up to 3% of employee contribution, or 2% of employee compensation up to $345,000 | None | None |
The Takeaway
SIMPLE IRAs are an easy way for employers and employees to save for retirement — especially those who are self-employed (or for companies with under 100 employees). In fact, a SIMPLE IRA gives employers two ways to help employees save for retirement — by a direct matching contribution of up to 3% (assuming the employee is also contributing to their SIMPLE IRA account), or by providing a basic 2% contribution for all employees, regardless of whether the employees themselves are contributing.
While SIMPLE IRAs don’t offer the same high contribution limits that 401(k)s do, individuals who want to save more can compensate by opening a traditional or Roth IRA on their own.
Ready to invest for your retirement? It’s easy to get started when you open a traditional or Roth IRA with SoFi. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).
Photo credit: iStock/FatCamera
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below:
Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
SOIN1023162
Read more
