What a SIMPLE IRA is
A SIMPLE IRA — Savings Incentive Match Plan for Employees — is a retirement plan designed for small businesses. Each employee gets an individual IRA funded by their own salary deferrals and a mandatory employer contribution. There is no plan trust, no annual nondiscrimination testing, and no Form 5500 filing requirement for most employers. That simplicity is the point.
The plan works well for small employers who want to offer a benefit without the administrative weight of a 401(k). But the simplicity comes with tradeoffs. The contribution limits are lower than a 401(k), there is no Roth option, no loan provision, and the employer must contribute every year. For owners who want to maximize their own savings, those limitations start to matter.
The question is never whether a SIMPLE IRA is a good plan. It is whether it is the right plan for your business, your employees, and your own retirement goals. That answer depends on the numbers.
The plan is also relevant in the context of New Jersey's retirement savings mandate. Employers with twenty-five or more employees who do not sponsor a qualifying plan are required to facilitate enrollment in a state-sponsored IRA. A properly established SIMPLE IRA satisfies the exemption — but only if the plan meets the legal requirements. An employer who set up a SIMPLE IRA informally, skipped the required employee notification, or never documented the employer contribution formula may not actually be running a compliant plan. The exemption requires a real plan, not just an account.
One feature of the SIMPLE IRA that is easy to overlook is the annual election window. Employees must be given the opportunity to modify or stop their salary deferral election at least once per year, and the plan must notify them of this right sixty days before the start of each calendar year. Missing the notification is a compliance violation. For small employers running the plan out of a spreadsheet with no third-party administrator, these administrative details accumulate into real exposure over time.
What working with us looks like
First meeting — the plan comparison
We meet in person with your actual payroll data and run the comparison across SIMPLE IRA, SEP IRA, and 401(k) side by side. We show you the employer cost, the owner's savings capacity, and the administrative difference in real numbers.
Second meeting — the written recommendation
You leave with a written plan recommendation: which plan type, which provider, which contribution formula, and what it costs per employee. If the SIMPLE IRA is the right fit, we tell you why. If it is not, we say so.
A note on fit
When this might not be right for you
A SIMPLE IRA is not the right plan for every small business. Some of the situations where it probably misses:
- Owners who want to contribute more than the SIMPLE IRA limit. A 401(k) or defined benefit plan may allow significantly more.
- Businesses that already maintain another retirement plan. You generally cannot sponsor a SIMPLE IRA alongside a 401(k) or other qualified plan.
- Employers who want a Roth option for their employees. The SIMPLE IRA does not offer one.
The plan that is easiest to set up is not always the plan that serves you best. The comparison is worth one meeting.
Frequently asked questions
What is the difference between a SIMPLE IRA and a SEP IRA?
A SIMPLE IRA allows both employee and employer contributions, while a SEP IRA allows only employer contributions. The SIMPLE IRA has a lower contribution cap but lets employees defer part of their salary. A SEP has no employee deferral but allows larger employer contributions as a percentage of compensation. The right choice depends on whether employees want to contribute.
How much does a SIMPLE IRA cost the employer?
The employer must either match employee contributions dollar for dollar up to three percent of compensation, or contribute a flat two percent of compensation for every eligible employee. The actual dollar cost depends on your payroll. We model both formulas with your real numbers.
Can I convert a SIMPLE IRA to a 401(k)?
Yes. An employer can terminate a SIMPLE IRA and establish a 401(k) plan, but the timing matters. The SIMPLE IRA can only be terminated at the end of a calendar year, and the new plan must start at the beginning of the next year. Employees' existing SIMPLE IRA balances remain in their accounts and can be rolled over after the two-year holding period.
What is the SIMPLE IRA two-year rule?
During the first two years of participation in a SIMPLE IRA, early withdrawals carry a twenty-five percent penalty — more than double the usual ten percent. Rollovers to a non-SIMPLE IRA during this period also trigger the penalty. After two years, normal IRA distribution and rollover rules apply.
Can a sole proprietor set up a SIMPLE IRA?
Yes. A self-employed individual with no employees can establish a SIMPLE IRA. However, a SEP IRA or a solo 401(k) often allows higher contributions for a sole proprietor. A SIMPLE IRA requires an employer contribution — which means you are contributing to your own account in two capacities — and it imposes the two-year early withdrawal restriction from the start. For most sole proprietors, the solo 401(k) is a more powerful option and offers the Roth component the SIMPLE IRA does not. We compare the three options using your net self-employment income.
What are the SIMPLE IRA contribution limits?
The employee salary deferral limit for a SIMPLE IRA is lower than the standard 401(k) limit — in 2025, employees under fifty can defer up to $16,500, and those fifty or older can contribute an additional $3,500 catch-up amount. SECURE 2.0 also added a higher catch-up limit for participants aged sixty through sixty-three, allowing an even larger catch-up contribution for that window. These limits are set by the IRS and adjusted periodically for inflation. Owners who want to contribute more than the SIMPLE IRA cap allows should compare the plan against a 401(k) or a defined benefit plan.
Do you sell SIMPLE IRA plans?
No. We are fee-only fiduciaries. We advise on which plan type and provider fits your business, but we do not sell plan products, accept commissions, or receive referral fees from any provider. Our fee is paid by you and disclosed in writing.