A Savings Incentive Match Plan for Employees Individual Retirement Account, also known as a SIMPLE IRA, is a tax-deferred savings account that allows smaller employers to establish a retirement plan for their employees.
SIMPLE IRAs are very much like 401(k) plans for employers with less than 100 employees. Employees can make contributions through salary reductions, while employers can make matching non-elective contributions.
Employers can establish SIMPLE plans as long as they have less than 100 employees that received compensation of at least $5,000 in the prior calendar year. These same employers cannot maintain another qualified plan, such as a 401(k) plan, unless that plan was established for a bargaining unit.
Employers are generally required to match the employee’s contribution on a dollar-for-dollar basis, up to 3% of the employee’s compensation. Employers may also choose to make “non-elective” contributions equal to 2% of the employee’s annual compensation.
Qualified distributions, or normal withdrawals, from a SIMPLE IRA can start at age 59 1/2, subject to a “2-year period” rule. In 2018 and 2019, the SIMPLE plan contribution limit stood at $12,500 and $13,000 respectively. Employees age 50 and over can make an additional catch-up contribution of $3,000.
Our article on SIMPLE IRAs contains up-to-date information on contributions as well as rollover rules.