SIMPLE IRA

A SIMPLE IRA is a retirement plan for small businesses in which employees defer part of their pay into individual retirement accounts and the employer must make either a matching or a fixed contribution. The IRS describes it as available to small businesses, generally with 100 or fewer employees.

It is not a 401(k). Employees hold their own IRAs at a financial institution, and the employer generally has no filing requirement and does not file Form 5500.

Who Can Set Up a SIMPLE IRA?

An employer can set up a plan if it had 100 or fewer employees who received at least $5,000 in compensation last year. The plan must generally be the only retirement plan to which the employer contributes, with an exception for a qualified plan covering collectively bargained employees.

If the employer later outgrows the limit after maintaining the plan for at least 1 year, it is treated as meeting the limit for the 2 calendar years that follow. A plan can generally take effect on any date from January 1 through October 1.

Which Employees Must Be Eligible?

An employee must have earned at least $5,000 in compensation in any 2 preceding years and expect to earn at least $5,000 in the current year. An employer may use less restrictive requirements but not more restrictive ones.

An employer may exclude employees covered by a union agreement whose retirement benefits were bargained in good faith. It may also exclude nonresident aliens with no U.S. wages from the employer.

How Do SIMPLE IRA Contributions and 2026 Limits Work?

The employer must choose one contribution method each year. It can match employee deferrals dollar for dollar up to 3% of pay, or contribute 2% of pay for every eligible employee whether or not they defer. The match can be reduced to as low as 1%, but not for more than 2 years out of 5.

All contributions are always 100% vested. Employee deferrals must be deposited within 30 days after the end of the month in which they would have been paid in cash, and employer contributions are due by the employer's tax return due date, including extensions.

How Is a SIMPLE IRA Different From a 401(k)?

A SIMPLE IRA trades lower limits for lighter administration. The 2026 deferral limit for a 401(k) is $24,500, and the age 50 catch-up is $8,000, according to the IRS 2026 limits announcement.

Employer contributions are optional in a traditional 401(k) but required in a SIMPLE IRA, and SIMPLE IRA money is always fully vested. A safe harbor 401(k), such as the QACA design, also requires employer contributions but uses the higher 401(k) limits. A SIMPLE IRA employer generally cannot sponsor another plan.

Employers that outgrow a SIMPLE IRA often look at a safe harbor 401(k). SECURE 2.0 now allows an employer to replace a SIMPLE IRA with a safe harbor 401(k) during a year.

How Did SECURE 2.0 Change SIMPLE IRAs?

Employers with 25 or fewer employees can use the higher $18,100 limit for 2026. Employers with 26 to 100 employees can use it if they make a 4% match or a 3% nonelective contribution. The law also allows an additional nonelective contribution of up to 10% of pay, subject to a dollar cap.

SECURE 2.0 also permits SIMPLE IRA contributions to go to a Roth IRA. The IRS extended the deadline for SIMPLE IRA plan amendments under SECURE 2.0 to December 31, 2027.

How Does HR Cloud Fit Into SIMPLE IRA Administration?

HR Cloud's payroll integration page describes two-way integrations with payroll systems, including ADP, UKG and QuickBooks. Its electronic signature page describes keeping approvals in the system of record with reports on signing activity.

The pages do not describe retirement plan administration, SIMPLE IRA notices, deferral elections or contribution deposits. HR still handles the annual election period notice, plan forms and deposit timing with the financial institution and payroll provider. HR Cloud is not a legal advisor and does not ensure compliance.

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Frequently Asked Questions

Q: How many employees can a SIMPLE IRA employer have?

A: Generally 100 or fewer employees who received at least $5,000 in compensation the previous year. Employers that outgrow the limit have a 2-calendar-year grace period.

Q: Is the employer contribution required?

A: Yes. The employer must choose either a match of up to 3% of pay or a 2% contribution for each eligible employee. No other employer contributions are allowed apart from the additional nonelective option.

Q: What is the 2026 SIMPLE IRA deferral limit?

A: $17,000, with a $4,000 catch-up at age 50 or older. A higher $18,100 limit applies to certain employers.

Q: When must employees be told about the plan each year?

A: Before the election period, which is generally the 60 days before January 1. The IRS lists the dates as November 2 to December 31.

Q: Can an employee take money out early?

A: Early withdrawals can trigger an additional tax, and it rises to 25% if funds are withdrawn within 2 years of beginning participation.

Q: Can an employer have a SIMPLE IRA and a 401(k)?

A: Generally no, because the SIMPLE IRA must be the only plan to which the employer contributes. An exception covers a qualified plan for collectively bargained employees.