What is a SIMPLE IRA?


  • An eligible employer is one with no more than 100 employees.
  • An employer contribution is required. It can be either: A matching contribution up to 3% of compensation (not limited by the annual compensation limit) or a 2% nonelective contribution for each eligible employee.
  • The employer may reduce the 3% limit to a lower percentage, but not lower than 1%. The employer may not lower the 3% limit for more than 2 calendar years out of the 5-year period ending with the calendar year the reduction is effective.
  • If the 2% nonelective match is choosen all eligible employees receive the match whether or not they have contributed to the plan.
  • Employee salary reduction contributions (elective deferrals) are limited to $12,500 in 2017. For employees age 50 or over, a $3,000 “catch-up” contribution is also allowed.These contribution limits are subject to annual cost-of-living-adjustments.
  • Contributions to SIMPLE IRA accounts are always 100 percent vested, or owned, by the employee.
  • The steps to set up a SIMPLE IRA are: 1) Execute a written agreement to provide benefits to all eligible employees. 2) Give employees certain information about the agreement. 3) Set up an IRA account for each employee.
  • Employees contributions are pretax and earnings are tax deferred until distribution.
  • Distributions before the employee reaches 59 1/2 are subject to a 10% penalty unless an exception is met.
  • Early distributions in the first 2 years of the plan are subject to a 25% penalty unless an exception is met.


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