SIMPLE IRA Contribution Limits

SIMPLE IRA contributions are limited to $14,000 in 2022, plus a $3,000 catch-up for those eligible.

Written by Bob Haegele / August 12, 2022

Quick Bites

  • SIMPLE IRAs are an ideal way for small employers with 100 employees or fewer to sponsor a retirement plan.
  • Employees can contribute up to $14,000 in 2022 plus a $3,000 catch-up contribution if eligible.
  • Employers can make either a 2% nonelective contribution or a 3% match.

Retirement plans can be expensive to administer, and that is especially problematic for small businesses. Paperwork for these plans can also be extensive and require annual filing. One possible solution is the SIMPLE IRA.

These plans are ideal for startups that don’t have large budgets and can’t handle the extensive reporting requirements of traditional retirement plans. These plans let employers offer matching contributions as they work to build and grow their businesses.

What is a SIMPLE IRA?

Savings Incentive Match Plan for Employees (SIMPLE) IRA plans are available to companies with 100 employees or fewer, small business owners, and self-employed people. These plans allow small businesses to offer retirement plans with matching contributions. Employers cannot have any other retirement plan if they want to offer a SIMPLE IRA.[1,2]

These plans do not have the start-up or administrative costs that traditional retirement plans have. Plus, the paperwork is minimal as only one form must be submitted per employee.[3]

A Gig Worker’s Guide to Saving for Retirement

A Gig Worker’s Guide to Saving for Retirement

Wherever you fall on the self-employed spectrum (freelancer, independent contractor, budding entrepreneur), your future self will be very grateful if you are saving for retirement now.

Find out more

Employers can either allow each employee to select their own financial institution for their SIMPLE IRA or have all employees use an employer-designated institution. Employers must submit form 5304-SIMPLE for employees choosing their own financial institution or form 5305-SIMPLE for employees with an employer-designated institution.


There are no specific age restrictions for SIMPLE IRA plans. In general, any employee who earns at least $5,000 in any two preceding years and is expected to earn at least $5,000 in the current year is eligible. However, employers can also set less restrictive eligibility requirements or eliminate them entirely.

Tax considerations

SIMPLE IRA plans are traditional retirement plans with tax-deferred contributions. There is no Roth option for this type of plan. Also, note that contributions and earnings in a SIMPLE IRA can be rolled into another IRA tax-free. The same is true when rolling money from a SIMPLE IRA to another type of IRA, but only after 2 years of participation in the plan.

What to Do About Retirement Planning

What to Do About Retirement Planning

Saving enough money for retirement takes time and discipline, but is doable with a strong plan in place.

Find out more

Early withdrawals

One last important note about SIMPLE IRAs is on withdrawals. As a traditional IRA, withdrawals from a SIMPLE IRA made before age 59 ½ are subject to a 10% penalty. However, with a SIMPLE IRA, the penalty increases to 25% if it occurs in the first two years of participation in the plan.

What are the contribution limits?

The contribution limits for these plans are higher than the limits for IRAs that employees open for themselves. But they are lower than for other types of plans:

  • Contribution limit of $14,000 per employee for 2022

  • Additional $3,000 catch-up contribution for employees 50 and over

All money that is contributed to a SIMPLE IRA is 100% fully vested. In other words, there is no vesting period.

Employer contributions

Employers offering a simple IRA have two options for employer contributions:

  • 2% nonelective contribution: 2% of each eligible employee's compensation regardless of whether or how much the employee deferred. The maximum compensation used to determine this contribution is $290,000 for 2021 and $305,000 for 2022.

  • 3% matching contribution: Employers can match the employee's elective deferrals on a dollar-for-dollar basis up to 3% of the employee's compensation.

This leaves employers with few options for how they want to contribute to the plan, says Amy Ouellette, vice president of product at Vestwell. “Employers must contribute to the plan with very little flexibility for who is eligible to participate, and no added ability to save beyond these contributions,” Ouellette says.


What is the advantage of a SIMPLE IRA?

SIMPLE IRA plans have several advantages, both for employers and employees. For employers, these plans require minimal paperwork and are cheaper to start and administer than other types of plans. For employees, there is no vesting period, and you are able to make tax-deferred contributions.

What is a SIMPLE IRA vs 401(k)?

Any kind of employer can offer a 401(k), but only a business with 100 employees or fewer can offer them, plus small business owners and self-employed people. Another key difference is that SIMPLE IRA plans have lower contribution limits compared to 401(k) plans. Also, SIMPLE IRA plans require employer contributions; 401(k) plans do not.

What is a SIMPLE IRA vs traditional IRA?

A SIMPLE IRA is one that an employer establishes, while a traditional IRA is one an individual establishes separate from their employer. A traditional IRA owner is usually the sole contributor to the plan, while SIMPLE IRA contributions are made by both employer and employee.

Article Sources
  1. “Simple-IRA.” Vanguard.
  2. “SIMPLE IRA Plan.” Internal Revenue Service.
  3. “Simple-IRA.” Vanguard.

About the Author


Bob Haegele

Bob Haegele is a personal finance writer who specializes in topics such as investing for retirement, credit cards, and insurance. You can find some of his work in Business Insider, Forbes Advisor, and Bankrate.

Full bio

Related Content