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What Is a SIMPLE IRA and How Can Employers Set It Up
and Manage It Effectively?
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The Simple IRA guide for Employers is designed to provide you with all the information you need to understand, set up, and manage a Simple IRA plan for your employees. Below, you will find comprehensive details about the plan, benefits, requirements, setup process, and resources for ongoing management.
This article has been updated from its original publication date of December 18, 2025.
Table of Contents
- What is a Simple IRA?
- Who Is Eligible for a SIMPLE IRA?
- Benefits of a Simple IRA for Employers
- SIMPLE IRA Contributions: Employer & Employee (Updated for 2026)
- How to Set Up a SIMPLE IRA
- Managing Your Simple IRA Plan
- Important SIMPLE IRA Deadlines (2026)
- Early Withdrawal Penalties
- Simplify Simple IRA Reporting on Paystubs with SecurePayStubs
What is a Simple IRA?
Simple IRA - Savings Incentive Match Plan for Employees
- A SIMPLE IRA (Savings Incentive Match Plan for Employees) is a tax-advantaged retirement plan designed for small businesses with 100 or fewer employees.
- It allows both employers and employees to contribute to retirement savings in an easy, low-cost, and straightforward way—making it one of the most accessible alternatives to a 401(k).
Who Is Eligible for a SIMPLE IRA?
Before setting up a SIMPLE IRA, it’s important to understand who qualifies to participate. The IRS sets specific eligibility rules for both employers and employees to ensure the plan is used properly by small businesses.
| Employer Eligibility | Employee Eligibility |
|---|---|
A business can offer a SIMPLE IRA if it meets all the following requirements:
| An employee is eligible to participate if they:
|
Benefits of a Simple IRA for Employers
- Tax Advantages: Contributions made by employers are tax-deductible, reducing your overall taxable income.
- Employee Retention: Offering a retirement plan can help attract and retain talent by providing valuable benefits.
- Ease of Administration: Simple IRAs are easier and less costly to administer compared to other retirement plans like 401(k)s.
- Employee Contributions: Employees can make salary deferral contributions, increasing their retirement savings with pre-tax dollars.
SIMPLE IRA Contributions: Employer & Employee (Updated for 2026)
A SIMPLE IRA allows both employers and employees to contribute toward retirement savings. Below is the updated contribution structure, including 2026 IRS limits and SECURE 2.0 enhancements.
SIMPLE IRA Employer Contributions 2026
Every employer offering a SIMPLE IRA must contribute each year. You can choose one of the two contribution methods:
| Matching Contribution (Up to 3%) | Non-Elective Contribution (2%) |
|---|---|
| Employers match the employee’s salary deferrals dollar-for-dollar up to 3% of their compensation. Key Points:
| Employers contribute 2% of each eligible employee’s compensation, even if they do not contribute themselves. Key Points:
|
SIMPLE IRA Employee Contributions 2026
Employees can contribute a portion of their salary to the SIMPLE IRA through payroll deductions.
Standard SIMPLE IRA Plans
- Employee Contribution Limit: $17,000(up from $16,500) up from $16,500
- Catch-Up Contribution (Age 50+): $4,000(up from $3,500)
Enhanced SIMPLE IRA Plans (SECURE 2.0)
Some employers may offer higher contribution limits:
- Enhanced Employee Contribution: $18,100 (up from $17,600)
- Special Catch-Up for Age 50+: $3,850(unchanged)
- Enhanced Catch-Up for Ages 60–63: $5,250(unchanged)
Why this matters:
Enhanced plans allow older employees to save more and help small businesses stay competitive.
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How to Set Up a SIMPLE IRA
Step 1 – Choose a Financial Institution
Select a bank, brokerage, or provider to hold IRA assets
Step 2 – Complete IRS Forms
Box with forms:
- Form 5304-SIMPLE (employees choose the institution)
- Form 5305-SIMPLE (employer chooses it)
Step 3 – Notify Employees
Provide details about the plan, contribution rules, and deadlines.
Step 4 – Establish Employee Accounts
Help employees open SIMPLE IRA accounts.
Managing Your Simple IRA Plan
- Annual Notice: Inform employees about their ability to make or change salary reduction contributions, and the employer's contribution method.
- Contribution Deposits: Ensure timely deposits of employee contributions (generally by the 30th day of the month following the month in which the contributions are withheld).
- Recordkeeping: Maintain accurate records of employee contributions, employer contributions, and plan administration.
- Ongoing Communication: Regularly update employees on their contributions, account balances, and any changes to the plan.
Important SIMPLE IRA Deadlines (2026)
Staying compliant with SIMPLE IRA deadlines is essential for smooth plan administration. Here are the key dates every small business must follow for the 2026 plan year:
Key Deadlines Overview
| Deadline | Date | What It Means |
|---|---|---|
| Plan Setup Deadline | October 1, 2026 | Last day to establish a SIMPLE IRA plan for 2026. |
| Annual Employee Notice | November 2, 2025 | Employers must provide the yearly SIMPLE IRA notice and plan details. |
| Employee Election Period | Nov 2 – Dec 31, 2025 | Employees select or update their salary reduction amounts for 2026. |
| Employee Contribution Deposits | Within 30 days after month-end | Salary reduction contributions must be deposited on time. |
| Employer Match / Nonelective Contributions | Business tax filing deadline (including extensions) | Deadline to deposit employer contributions for 2026. |
Early Withdrawal Penalties
Withdrawals taken before age 59½ may be subject to a 10% early withdrawal penalty, plus income tax. If this withdrawal occurs within the first 2 years of participation, the 10% tax is increased to 25%. It's important to communicate these penalties to employees to encourage long-term savings.
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