SIMPLE IRA: a low-cost plan for a business with employees
A SIMPLE IRA lets employees save from their paychecks while the business adds a small match. It is easy to run and cheap to maintain, but it has lower limits than a 401(k) and a firm setup window.
Prepared by Prem Tax and Accounting Corp. Last checked against official sources on October 9, 2026.
How it works
You complete Form 5305-SIMPLE or 5304-SIMPLE, open a SIMPLE IRA for each eligible employee, and send salary deferrals plus the employer amount to their accounts. There is no yearly filing with the IRS for the plan.
2026 limits
| Item | 2026 |
|---|---|
| Employee deferral | $17,000 |
| Catch-up, age 50 or older | $4,000 |
| Catch-up, ages 60 to 63 | $5,250 |
| Higher limit for some small employers | $18,100 (SECURE 2.0, for example employers with 25 or fewer employees) |
| Employer contribution | Match up to 3% of pay, or 2% for every eligible employee |
| Employees must be included if | Earned at least $5,000 in any 2 earlier years and expect $5,000 this year |
Dates
| Date | What |
|---|---|
| January 1 to October 1 | Window to set up a SIMPLE IRA for the year (the 2026 window has closed) |
| November 2 to December 31 | Employees' 60-day election period before the new year |
| Within 2 years of first participation | Early withdrawals carry a 25% additional tax instead of 10% |
Good and not so good
What is good
- Low setup and running cost, no yearly filing
- Employees can save from their own pay
- The match is a clear, capped cost for the business
- Works for owners with employees
What to know
- Lower limits than a 401(k)
- Must be the only plan the business sponsors
- The setup window is January 1 to October 1
- No loans, and the 25% early withdrawal rule in the first 2 years
Not sure a SIMPLE is right for your team? Ask us.
Common questions
Who can set up a SIMPLE IRA?
Generally, an employer with 100 or fewer employees that does not sponsor another retirement plan at the same time. Self-employed people can also use one.
Can I still start one for 2026?
A new SIMPLE IRA can be set up any time from January 1 through October 1 of a year. That window has closed for 2026. You can set one up for 2027, or consider a SEP-IRA or a 401(k) for this year.
What must the business contribute?
Each year you choose either a dollar-for-dollar match up to 3% of pay, or a 2% contribution for every eligible employee whether or not they defer. Employers with 26 to 100 employees may raise these to 4% and 3% under SECURE 2.0.
Who is eligible to participate?
Employees who earned at least $5,000 in any 2 earlier years and expect at least $5,000 this year. You may use less restrictive rules, not stricter ones.
Is there a penalty for taking money out early?
Yes. During the first 2 years of participation, the 10% additional tax on early withdrawals is 25% instead.
Official sources
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