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A Savings Investment Match Plan for Employees (SIMPLE IRA) is an easy and low-cost way to set up a retirement program for self-employed individuals and small businesses with 100 or fewer employees. Eligible employees can fund their own SIMPLE IRA accounts through regular salary deferrals and Employers make additional contributions.

If you're a new employee click here to open a Simple IRA .

If you are a business owner/employer you can open your new plan by downloading the forms below .

What are the benefits of a SIMPLE IRA?

For employers:.

  • A way to contribute to your own retirement easily and regularly, and help your employees contribute to theirs
  • A low-cost plan funded mainly by employees
  • Business expense deductions for employee contributions
  • Easy administration with no tax filing
  • Retirement planning tools and resources
  • 24/7 service and support.

For Participants:

  • Employer-matched contributions of up to 3% of annual compensation
  • Tax-deferred earnings
  • Pre-tax contributions for participants

You can also view additional SIMPLE IRA information here.

Account Pricing

There is no fee to open or maintain an account at Schwab.

  • Minimum opening deposit: $0
  • $0 account open or maintenance fees. Other account fees, fund expenses, and brokerage commissions may apply 1 .
  • Trade commissions: $0 per online listed equity trades; 2  $0 per Schwab ETF online trade in your Schwab account 3

Find out more about our  fees and minimums .

Related Questions

Have questions about this account? Here are responses to some of the most common questions we hear. If you have a specific question that's not answered here, please call us at  800-435-4000 .

Get detailed instructions on how to Establish Your Plan, or call us at  800-435-4000  if you have questions.

A SIMPLE IRA may be appropriate for businesses with 100 or fewer employees seeking a low-cost plan that's easy to administer and maintain. If you are self-employed or own a business with 100 or fewer employees, you are eligible to establish a SIMPLE IRA plan, as long as it is the only retirement plan you fund. Companies maintaining another employer-sponsored retirement plan in the same year are not eligible. You must generally include all employees age 21 and over if they received at least $5,000 in compensation during any two prior years and if you reasonably expect that they will receive at least $5,000 in the current year. 4

Employer contributions are tax-deductible. Earnings grow tax-deferred, and you pay no taxes on assets until you withdraw them in retirement.

The plan is funded with contributions deducted from employees' salaries, as well as annual employer contributions. Each eligible employee can decide whether or not to participate and how much to contribute, but employer contributions are mandatory.

Although, employers may decide to match only those employees who contribute or may provide a contribution to all eligible employees. Every year employers may switch between match OR contribute for all, if desired.

Employees can contribute up to 100% of compensation or a maximum of $16,000 for 2024 ($15,500 for 2023), for those age 50 and older $19,500 for 2024 ($19,000 for 2023).

What is different in 2024?

  • Employers with 25 employees or fewer (who earned $5,000 or more in 2023) must allow an increased employee salary deferral limit of $17,600 (plus a $3,850 catch-up limit for those age 50 and older).
  • While employers with 26 to 100 employees (who received at least $5,000 in compensation in 2023), may voluntarily allow the increased salary deferral limits above, the employer had to provide prior notice of the higher limits to all employees at least 60 days before the end of 2023. Larger employer contributions are also required if the higher limit was communicated in time.

New plans must be established by October 1 (if contributions will be made for that same year). Employer contributions must be made annually by the employer's tax-filing deadline, including extensions. Employee contributions are deducted from employees' salaries and must be deposited at least monthly.

  • SIMPLE IRAs are easy to set up and maintain. IRS filing, tax reporting, and compliance testing are not required.
  • Schwab reports all contributions and end-of-year fair market value on Form 5498 by May 31 each year.
  • Full vesting is immediate

Withdrawals are penalty-free after age 59½. If you do not start Required Minimum Distributions (RMDs) by age 73, you may have to pay a penalty. The new SECURE 2.0 reduces the 50% penalty for missing an RMD effective for RMDs in 2023, it does not impact missed RMDs in 2022.  Under SECURE 2.0 if you don't take your RMD by the IRS deadline, a 25% excise tax on insufficient or late RMD withdrawals applies. If the RMD is corrected timely, the penalty can be reduced down to 10%. Follow the  IRS guidelines  and consult your tax advisor. Withdrawals before age 59½ are subject to a 10% penalty, and the penalty is increased to 25% if the withdrawal occurs within the first two years of participation in the SIMPLE IRA. There are certain exceptions for which you can withdraw funds before age 59½ without taking a 10% (or 25%) penalty, including:

  • Rollover of distributions to another IRA or employer plan
  • Higher education expenses for you or family members, including tuition, fees, books, supplies, and room and board (must be enrolled at least half-time)
  • First-time home purchase expenses ($10,000 lifetime limit) to buy, build, or rebuild a first home for you or your parents, children, or grandchildren (Note: You must not have owned a home within the past two years.)
  • Death or disability
  • Birth or adoption expenses
  • Certain medical expenses, including qualifying health insurance costs for certain unemployed individuals and nonreimbursed expenses exceeding 7.5% of adjusted gross income
  • Withdrawals made in equal installments over the account holder's life expectancy

SIMPLE IRAs offer an easy way for business owners to contribute to a retirement plan while offering one to employees as well. These plans are low cost, easy to administer and maintain with no need to file with the IRS. You and your employees can contribute up to a maximum of 100% of compensation OR $16,000 for 2024 ($15,500 for 2023), whichever is less. If you or your employees are over age 50, salary deferral catch-up contributions increase the limit to $19,500 for 2024 ($19,000 for 2023), but still no more than 100% of compensation. With the matching option, you match the employee contribution dollar for dollar up to 3%, not to exceed the salary deferral limit for that year. In any two out of five consecutive years, you may match a smaller percentage, not less than 1%. You only contribute to the retirement accounts for the eligible employees who make salary deferral contributions. The nonelective contribution option requires that you contribute 2% of each eligible employee's compensation up to a maximum of $6900 for 2024 ($6600 for 2023). Employees do not have to make contributions themselves, to get the nonelective contribution.

To offer the SIMPLE IRA plan, as an employer, you must employ 100 people or fewer, each of whom earned at least $5,000 during the previous year. This includes all employees, regardless of whether or not they are eligible to participate in your SIMPLE IRA plan. Employees who earned $5,000 in ANY two (2) previous years working for the employer are eligible for the SIMPLE IRA. Employees who are not eligible, or who can be excluded from the eligible category, include those who belong to organized unions and any nonresident alien employees who received no U.S. wages, salaries or other personal services compensation from you. To make contributions for the current year, you must establish a new SIMPLE IRA plan between January 1 and October 1 of the tax year unless your business is established after October 1. You may not maintain any other retirement plans such as SEP IRAs, profit-sharing or 401(k) plans. (Unionized employees are an exception to this rule.) If the number of people you employ goes over 100, you can still maintain your SIMPLE IRA plan for two years after the first year the 100-employee limit is exceeded. After two years, if you still employ more than 100 people, you are no longer eligible to maintain a SIMPLE IRA plan.

Employers - Establish Your Plan

Employers: Follow these instructions to establish and contribute to a new Schwab SIMPLE IRA Plan*. Need help? Call  800-435-4000 .

  • Review the basic plan document , which describes and governs your account, and keep it for your records.
  • Print and complete the adoption agreement . Retain a copy and return the signed original to Schwab.
  • Print and complete your employer's agreement . Retain a copy and return the signed original to Schwab.
  • Read answers to frequently asked questions about the Schwab SIMPLE IRA.
  • Optional: Review the benefits, features, and contribution eligibility of the plan.

Employer Next Steps

After you've done your initial paperwork, here are the next steps.

Employees can open their account electronically by clicking Open a SIMPLE IRA . Or refer your employees (Participants) to the "Participants - Enroll in Your Company's Plan" OR Download, print, and distribute the following documents to each eligible employee.

*Note: Before distributing the Participant Notice and Summary Description to your eligible employees, complete the document in accordance with the elections you made on the Adoption Agreement.

Once you have established your Schwab SIMPLE IRA plan, opened your own SIMPLE IRA, and opened SIMPLE IRAs for eligible employees (as applicable), you may begin making contributions. To fund your plan, print and complete the  Contribution Transmittal Form . Be sure your check total matches the total amount of participant contributions. Mail your check and the transmittal form to the nearest Schwab operations center listed below:

Charles Schwab & Co., Inc. P.O. Box 628291 Orlando, FL 32862-8291

Charles Schwab & Co., Inc. P.O. Box 982600 El Paso, TX 79998-2600

*Note: Schwab does not accept the 5305 or 5304 IRS Model Plan, or any other provider's Model Plan.

Participants - Enroll in Your Employer Plan

If your Employer has already established a Schwab SIMPLE IRA retirement savings plan to help you meet your retirement goals, and they have had advised you that you are eligible to participate, follow these instructions to open your SIMPLE IRA Account.

Your Employer should have already provided you with the Schwab SIMPLE IRA Enrollment Kit. Review the enclosed Employee Q& A and the Participation Notice & Summary Description included in that kit to learn all about the Schwab SIMPLE IRA.

  • Click on Open a Simple IRA Account below to immediately open your account online.
  • Download, print and save the following documents below.

If you prefer to open your new account by paper application, download the documents below, complete and return them to your Employer.

*Note: Schwab does not accept the 5305 or 5304 IRS Model Plan, or any other provider's SIMPLE Adoption Agreement/Prototype Plan.

Paper Enrollment Instructions

  • Download and Read the Employee Instructions and follow the instructions if you plan to print, complete your application by paper.
  • Download and Complete the Elective Deferral Agreement . Be sure to indicate whether you want your salary deferred as a percentage or fixed amount. Return this document to your employer.
  • If choosing to complete your Schwab IRA Account Application by paper, complete the application and return it to your employer along with your completed Elective Deferral Agreement. Otherwise, click on "Open a SIMPLE IRA Account" to begin your enrollment and open your Account online.

NOTE: For questions or help completing the SIMPLE IRA forms, see your employer or Plan Administrator.

Take the Next Step

Employers-establish your simple ira plan today..

Get detailed instructions above in the "Employers - Establish Your Plan" section

Call  800-435-4000 .

Participants/Employees – Open a SIMPLE IRA Account

If your Employer has already established a Schwab SIMPLE Plan, you can apply for your SIMPLE IRA Account. You will be required to provide your Employer’s SIMPLE IRA Group ID during the Account Open process. Get detailed instructions above in the "Participants - Enroll in Your Employer Plan" section.

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SIMPLE IRA Rules and Contribution Limits for 2023 and 2024

SIMPLE IRAs are a retirement savings option that employers may pick for their workers and themselves. Explore the rules and contribution limits of SIMPLE IRAs.

https://tickertapecdn.tdameritrade.com/assets/images/pages/md/Simple IRAs and saving for retirement

Key Takeaways

  • SIMPLE IRAs are available to businesses with 100 or fewer employees in the previous year

The SIMPLE IRA contribution limit is $15,500 for the 2023 tax year; it goes up to $16,000 for the 2024 tax year

  • Distribution rules and tax benefits for SIMPLE IRAs are similar to those of traditional IRAs

If you’re among the 28 million small business owners in the United States, or one of the 15 million self-employed workers in the United States, you might want to consider establishing a Savings Incentive Match Plan for Employees, better known by its acronym: SIMPLE IRA.

The SIMPLE IRA can be among the easiest ways for self-employed people and businesses with fewer than 100 employees to set aside tax-deferred money for retirement.

If you meet the eligibility requirements, setting up a SIMPLE can allow you to sidestep much of the heavy lifting required for other sponsored retirement plans, such as a 401(k), which typically require hefty reporting and administrative duties. SIMPLE IRAs—dare we say it?—are more simple than 401(k) plans, but they allow employees to contribute for themselves unlike most other small business retirement plans.

Here’s what you need to know about the SIMPLE IRA rules, such as potential tax benefits, withdrawal requirements, and contribution limits.

What is a SIMPLE IRA?

A SIMPLE IRA is a retirement savings plan available to any small business or self-employed worker with 100 or fewer employees in a calendar year. A SIMPLE is established by the business owner filling out a plan document to set the terms of the plan. Vendors for SIMPLEs may use different types of plans, so check with your provider for the correct form. The setup period for new SIMPLE IRAs runs from January 1 to October 1 of the current year, unless you start the business after October 1. If you start a new business after October 1, you may open your new SIMPLE IRA plan when you started your business. For example, if you start a new business on November 1, 2023, you could also start your new SIMPLE IRA effective November 1, 2023, even though it’s after the normal October 1 deadline. Those already maintaining a SIMPLE IRA need to re-up on January 1 of each calendar year.

There are no IRS filing requirements for the employer, but it’s important to note that the employer cannot have any other retirement plan in place. According to the IRS, any employee earning at least $5,000 during any two years before the current calendar year, and who expects to make at least that in the current calendar year, can participate. Employees must be notified of the plan before the beginning of the election period, or in recurring SIMPLE IRAs, 60 days before January 1 to allow enough time for them to make any salary deferral contribution changes.

Typically, the SIMPLE provider will create a sample Summary Description to send to the business owner. Once the owner completes the Summary Description, the business owner gives a copy to each employee at least 60 days before January 1 of the coming year. Thus, before employee salary deferrals start in January, each eligible employee has had at least 60 days to consider how much to contribute. At the same time, the business owner must also tell the employees whether the employer will match employee contributions or if they’ll contribute to all eligible employees.

Here’s a potential plus for some employers: They can be less restrictive in their participation rules but cannot add higher limits or any other rules. For example, Joe’s Grocery can allow store clerks who may have made only $3,000 the prior year to participate. But Joe can’t provide a larger match for employee contributions than the standard dollar-for-dollar match (up to 3% of the employee’s salary), nor can he provide that matching contribution PLUS additional across-the-board contributions for employees. Contributions for employers to employees are capped.

simple ira plan for small business

What are the SIMPLE IRA rules and contribution limits for 2023 and 2024?

The SIMPLE IRA contribution limit for the 2023 tax year is $15,500, meaning employee salary deferral contributions may not exceed that amount per person. For 2024, the contribution limit rises to $16,000. For 2024, employees 50 and older may make additional “catch-up” contributions up to $3,000. Starting in 2024, the SECURE 2.0 Act added a provision where some plans may allow an even higher employee salary deferral contribution. This higher limit must be offered to employees if the employer has fewer than 26 employees who earned $5,000 in 2023 (Note: This may be a different list then the employees who are actually eligible for the plan.).

If the employer employs 26 or more employees earning $5,000 or more in 2023, the employer may choose to allow employees to contribute the higher salary deferral limit for 2024.

So, what is the higher salary deferral limit? For 2024, it’s 110% of the normal $16,000 limit, which equals $17,600.

The employer may either match the employee contribution on a dollar-for-dollar basis (up to 3% of the employee’s salary) or make what’s called a non-elective contribution. If an employer chooses the non-elective contribution instead of matching, they must make a 2% contribution to every eligible employee, even to a worker who doesn’t take any salary deferral contribution at all.

The employer must choose one of these contribution types for each year. There is some ability to reduce the employer contribution in some years, but this is limited, so do some homework first before deciding on employer contributions.

Regarding withdrawals, SIMPLE IRA rules are similar to those of traditional IRAs. When you withdraw from a SIMPLE IRA, you’ll pay taxes on any amount not rolled over. And if you’re under 59 ½, you may have an additional 10% penalty. If you have not held the SIMPLE account for at least two years, the 10% penalty is increased to 25% of the amount you took out. Remember: There are other exceptions to the 10% penalty, and these exceptions also apply to the 25% penalty.

When you reach age 73, you must begin taking a certain amount each year, aka a  required minimum distribution  (RMD). Remember, your contributions are tax-deferred, not tax-free. One more word of caution regarding  RMDs : If you don’t take one, you could face a 25% excise tax on that amount.

An  RMD calculator  can help you determine your actual distribution requirement.

Are there tax benefits for SIMPLE IRAs?

The employer’s contributions to all accounts are tax deductible, while the worker’s contributions are federally pre-tax. That allows for tax-deferred growth potential on contributions. Thus, investment gains are not taxed until withdrawal.

Remember: Like other retirement savings plans, there are penalties for early withdrawal. Not only are the dollars pulled out subject to income tax, but that amount is also coupled with an extra 10% tax if the employee is younger than 59 1/2. If the distribution was made in the first two years of participation in the plan, that penalty escalates to 25%. Like traditional IRAs, there are some exemptions for early withdrawal. Refer to  this list on the IRS website .

As a small business owner, you have a lot of choices when it comes to retirement plans. In addition to the SIMPLE IRA, there are  solo 401(k) plans , SEP-IRAs , and  profit-sharing plans . Each retirement plan has its pros and cons. TD Ameritrade can help you better understand the different types of retirement plans to see which may be right for you and your business. 

Maximum contribution limits cannot be exceeded. Contribution limits provided are based on federal law as stated in the Internal Revenue Code. Applicable state law may be different. TD Ameritrade does not provide legal or tax advice. Please consult your legal or tax advisor before contributing to your IRA.

Christine Russell

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  • Retirement Planning

SIMPLE IRA Plans for Small Business Owners and Employees

How the plan works.

  • Qualifications for Establishing It

Advantages of a SIMPLE IRA

Account contribution limits, simple ira withdrawals.

"SIMPLE IRA" is an acronym for Savings Incentive Match Plan for Employees Individual Retirement Account. This type of IRA makes sense for small businesses, in part because of its reduced cost and maintenance compared to other retirement plans.

The SIMPLE IRA works well as a start-up retirement plan for small employers who do not currently sponsor retirement benefits like a 401(k) plan  or a 403(b) plan . Like other kinds of individual retirement accounts (IRAs), employees in the program can choose to make salary reduction contributions, and the employer makes matching or nonelective contributions.

Key Takeaways

  • A SIMPLE IRA plan establishes an IRA for each employee that they and their employers can both contribute to and get tax benefits from.
  • SIMPLE IRAs are for small businesses with no more than 100 employees, and employees must earn at least $5,000 per year.
  • For 2021, employees can contribute up to $13,500, or $16,500 for those age 50 and older. These limits increase to $14,000 and $17,000 in 2022.
  • Withdrawals from a SIMPLE IRA before age 59 1/2 are subject to regular income taxes as well as a 10% penalty.

In a SIMPLE IRA plan , the employer establishes an IRA for each employee. Both the employer and employees can then contribute to these accounts. Both the employer and the employees earn tax benefits at the time of contribution.

Employees are always 100% vested in the funds in their SIMPLE IRA accounts. In other words, if they leave their job, they can take all of the funds with them, including any contributions from the employer.

Qualifications for Establishing a SIMPLE IRA

SIMPLE IRAs are designed for small businesses. To qualify to establish one, a company can have no more than 100 employees who earn at least $5,000 per year. For companies that meet those qualifications, they only need to fill out forms with the IRS, establish IRA accounts for employees, and inform employees about their options regarding the SIMPLE IRA plan.

There are several advantages, both to employers and employees, in setting up a SIMPLE IRA plan. For one, the administrative costs to establish and maintain a SIMPLE IRA plan are lower compared to other alternatives. It's also an easy process to set one up.

As with other types of retirement accounts, employees covered by a SIMPLE IRA enjoy the advantage of making salary reduction contributions to their individual SIMPLE IRA account through regular payroll deductions. They will receive a tax break: Employee salary reduction contributions to a SIMPLE IRA, while not deductible on Form 1040, have the effect of a deduction as they're excluded from wages and other compensation listed on Form W-2 and therefore aren't reported as income on your Form 1040. What's more, the investments in the account can grow tax-deferred until withdrawn at retirement.

For employers, there's the advantage of flexibility for contributions. They can choose to either match the employee contributions to their individual SIMPLE IRA accounts, or the company can contribute a fixed percentage of all eligible employees’ pay to each account. Specifically, the employer can either match their employees’ contribution dollar-for-dollar up to 3% of pay, or they can choose to contribute a regular, nonelective 2% for each eligible employee.

If the employer chooses the latter, that can be another advantage for employees, because it means that even employees that don’t save anything from their paycheck will receive the 2% employer contribution into their SIMPLE IRA.

The employer who sponsors a SIMPLE IRA plan generally has no filing requirements with the IRS, which makes the system even easier for the employer. The financial institution that handles the investments for the SIMPLE IRA typically handles most of the work.

Employee salary reduction contributions aren't technically deductible but are excluded from W-2 income so have the effect of reducing your income as a deduction would.

Business owners who want to save more for retirement may find that the SIMPLE IRA contribution limits are more generous than other IRA options. That’s because both the company and the individual can contribute, meaning that even self-employed people get to benefit from SIMPLE IRAs. They can effectively match their own contribution, giving them the ability to contribute more than double the amount allowed by a traditional IRA retirement account.

For 2021, employees can contribute up to $13,500 to a SIMPLE IRA. This limit increases to $14,000 in 2022. Employees who are 50 or older can make additional "catch-up" contributions of $3,000. Additionally, if an employee participates in any other plan during the year and has elective salary reductions under those plans, the employee can contribute a maximum of $19,500 across all plans. This increases to $20,500 for 2022.

Make catch-up contributions of up to $3,000 to a SIMPLE IRA to reach your retirement savings goals faster.

Employees can make SIMPLE IRA withdrawals before retirement age, but not without serious repercussions. The IRS considers SIMPLE IRA withdrawals as income to the account holder, so the money will be subject to regular income taxes.

In addition to standard income taxes—as with a traditional IRA account—the IRS assesses a 10% penalty for early withdrawal on all SIMPLE IRA account withdrawals before the age of 59 1/2. If the employee makes those withdrawals within the first two years of participation in the SIMPLE IRA plan, the penalty tax rises to 25%.

There are some exceptions to this tax penalty, the most common of which may be unreimbursed medical expenses that exceed 10% of a person's gross adjusted income .

Internal Revenue Service. " SIMPLE IRA Plan ."

Internal Revenue Service. " Retirement Plans FAQs Regarding SIMPLE IRA Plans ."

Internal Revenue Service. " Retirement Plans for Self-Employed People ."

Internal Revenue Service. " Retirement Topics – SIMPLE IRA Contribution Limits ."

IRS. " SIMPLE IRA Withdrawal and Transfer Rules ."

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How do contributions work?

SE 401(k) : Employers may contribute up to 25% of compensation, up to a maximum of $69,000 in 2024 ($76,500 if age 50 or older).⁵ Employees may contribute up to $23,000 for 2024 ($30,500 if age 50 or older).⁵

SEP IRA : Employers may contribute between 0% and 25% of compensation up to a maximum of $69,000 for 2024.⁵ Each eligible employee must receive the same percentage.

Fidelity Advantage 401(k) : Employers make matching contributions, up to 4% of the annual gross compensation of all employees.⁴ Employees may contribute up to $23,000 for 2024 (catch up contributions available).⁵

SIMPLE IRA : Employers contribute either a matching contribution of 1, 2, or 3% or a non-elective contribution of 2%. 7 Participants may contribute up to 100% of compensation with a maximum of $16,000 for 2024 ($19,500 if age 50 or older). 8

Who can contribute?

SE 401(k) : As someone who's self-employed, you can contribute as both employer and employee.

SEP IRA : Only the employer can contribute.

Fidelity Advantage 401(k) : Both employees and employers can contribute.

SIMPLE IRA : Both employees and employers can contribute.

What about fees and tax credits?

SE 401(k) : There are no account fees and no minimum to open an account, $0 commission for online US stocks and ETF trades.⁶

SEP IRA : There are no account fees and no minimum to open an account. $0 commission for online US stocks and ETF trades.⁶

Fidelity Advantage 401(k) : There are no additional management fees or, with limited exceptions, fund expenses beyond the $300 per quarter fee.

SIMPLE IRA : There are no account fees and no minimum to open an account, $0 commission for online US stocks and ETF trades.⁶

When can withdrawals be made?

SE 401(k) : You can take a withdrawal once you’ve had a triggering event, such as disability, plan termination, turning age 59 ½ or older, and a few others. However, some withdrawals may incur a 10% penalty. 4

SEP IRA : You can withdraw at any time, but a 10% penalty may apply if you're not yet age 59½. 4

Fidelity Advantage 401(k) : You can take a withdrawal once you’ve had a triggering event, such as disability, plan termination, turning age 59½ or older, and a few others.⁴ However, some withdrawals may incur a 10% penalty. In the event of certain types of financial emergencies, you may be able to take a hardship withdrawal.

SIMPLE IRA : You can withdraw at any time, but a 10% (or 25% if within the first two years of participation) penalty may apply if you're not yet age 59½. 4

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Thank you for attending this session on SIMPLE Plan Options for Small Businesses.

The information in this session isn’t official guidance.

Our topic today is SIMPLE IRA Plans. What is a SIMPLE IRA plan? The SIMPLE acronym stands for: “Savings Incentive Match Plan for Employees.” These types of plans are easy to set up, easy to maintain, and don’t have any IRS filing requirements. They allow contributions to be made by the employee and the employer.

Additionally, employers can receive a tax credit of up to $5,000 for 3 years for start-up costs related to setting up a new SIMPLE Plan.

Now, let’s look at the requirements for maintaining a SIMPLE IRA to help you decide if this is the right plan for your small business.

To set up your SIMPLE IRA Plan, you must complete Form 5304-SIMPLE or Form 5305-SIMPLE.

You could also adopt a prototype document issued by a financial institution or an individually designed plan.

Note that there is no requirement that the plan file Form 5500 with the IRS. Next, we'll talk about SIMPLE plan eligibility.

What are the eligibility requirements to maintain a SIMPLE? Your business must have 100 or fewer employees to maintain this type of plan.

Also, Simple Plans are subject to the exclusive plan rule - you can’t maintain any other retirement plans (a 401k or other IRA)

while maintaining a SIMPLE IRA plan. What are the eligibility requirements for employees to participate in the plan?

All Employees that made at least $5,000 in any two prior years and are expected to make at least $5,000 in the current year must be eligible to participate. Further, the employer can make the eligibility requirements less restrictive by requiring less compensation to be eligible, which would allow more employees to participate.

Now, we’ll look at SIMPLE contributions.

How much can be contributed to a SIMPLE? Employers and employees can make contributions to a SIMPLE.

Both types of contributions are always 100% vested. Employees can defer up to $13,500 of their compensation for 2020 and 2021.

Unlike some of the other IRAs, the SIMPLE IRA does require certain employer contributions.

You have two options for the required employer contribution: A 3% match on 100% of the employee deferrals, or a non-elective contribution of 2% of each employee’s compensation, regardless of profits. If you choose the match, you can reduce it to 1%, but you can only do this for 2 out of 5 years.

You can’t reduce the match in the middle of the year.

However, you can make contributions through the due date of the tax return (including extensions).

Also, no employer contributions are allowed besides the match or 2% non-elective contribution.

What are the withdrawal options with a SIMPLE? Employees own their SIMPLE IRAs.

As mentioned before, employees are always 100% vested in both employee and employer SIMPLE IRA contributions.

Withdrawals of SIMPLE funds are allowed from the plan at any time and are subject to income tax.

The tax (or penalty) for withdrawing funds before an employee turns age 59 ½ is typically 10%.

This penalty increases to 25% if funds are withdrawn within 2 years after the employee first participates in the plan.

What are some of the common errors found in SIMPLE IRA plans?

The employer didn’t update the SIMPLE IRA plan document for current law changes.

The employer had more than 100 employees who earned $5,000 or more in compensation for the prior year.

The employer sponsors another qualified retirement plan.

The employer excluded an eligible employee from participating in the plan.

The employer used the wrong compensation definition to calculate deferrals and contributions for participants.

The employer must use the definition in the plan document.

What are some common errors with see with SIMPLE IRA Plans?

The employer made incorrect employer contributions for eligible employees.

The employer must follow the formula in the plan document.

The employer didn’t timely deposit employee elective deferrals.

Employee elective deferrals must be timely deposited.

Deferrals must be remitted to the appropriate financial institution as soon as possible.

The IRS has not determined what is reasonable, but has determined that it is UNreasonable to make the deposit more than 15 days following the month in which the employee would have otherwise received the money. The Dept. of Labor rules require salary deferrals to be deposited within 7 business days of when they were withheld from the employee’s pay.

Employer contributions weren’t given to eligible employees who terminated during the year.

Annual SIMPLE IRA plan notification requirements weren't followed.

You must notify employees before the beginning of each period of their opportunity to make salary reductions, their ability to select a financial institution to serve as the trustee to their IRA (if applicable), whether you will make matching or non-elective contributions, and a written notice that they can transfer their balance without cost or penalty if you use a designated financial institution. Generally, the period to give this notice is Nov 2 to Dec 31.

What are some additional SIMPLE IRA resources that are available to you?

If you visit our website at www.irs.gov/retirement and select “Types of Retirement Plans” and then select “SIMPLE IRA plans,” you’ll find a wealth of helpful information on these types of plans.

Also, under additional resources, we have two publications that may benefit you when considering a SIMPLE IRA: Publication 4334, SIMPLE IRA Plans for Small Businesses, and Publication 3998, Choosing a Retirement Solution for Your Small Business.

We also have a page dedicated to SIMPLE IRA operation. Additionally, you’ll want to check out our SIMPLE IRA Fix-it Guide if you have a SIMPLE plan and find errors with your plan. All these resources are available on our webpage at irs.gov/EP.

Please send any questions to us at [email protected].

We’ve covered the requirements to maintain a SIMPLE IRA plan, common errors found in these types of plans and some additional resources available to you to setup and operate your SIMPLE IRA.

We hope this session will help you decide if a SIMPLE IRA plan is right for you. Thank you for attending our session.

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With generous contribution limits, the SEP-IRA (Simplified Employee Pension) plan is the simplest, most flexible, tax-deferred retirement plan you can sponsor.

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A SIMPLE IRA (Savings Incentive Match Plan for Employees) is a great starter plan that encourages employees to contribute.

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Prepare for retirement with a flexible, easy-to-manage plan

A simplified employee pension plan (sep) ira is a flexible retirement plan offering tax benefits to business owners and their employees as well as self-employed people. footnotes  1, 2, sep ira features, bring value to your business without the extra fees.

simple ira plan for small business

Which retirement account is right for your business?

What's a key difference between a sep ira and a simple ira, get started with a sep ira in 3 easy steps, decide how you want to invest, open your account, explore all plans available for small business, ready to get started, frequently asked questions, why should i consider opening a sep ira instead of a traditional ira, what are the contribution limits for a sep ira, who can contribute to the account, can i roll over funds from a retirement account with a previous employer, how much does it cost for me and my employees to set up sep ira accounts, can funds be withdrawn from a sep ira before age 59½, when are contributions fully vested, what investment choices are available, what if i prefer to invest with an advisor, what are the advantages for employees, what is the plan establishment deadline, is irs reporting required.

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SIMPLE IRA vs. 401(k): The Pros and Cons of Each Plan

Dayana Yochim

Many or all of the products featured here are from our partners who compensate us. This influences which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. Here is a list of our partners and here's how we make money .

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The SIMPLE IRA vs. 401(k) decision is, at its core, a choice between simplicity and flexibility for employers.

The aptly named SIMPLE IRA, which stands for Savings Incentive Match Plan for Employees, is the more straightforward of the two options. It’s quick to set up, and ongoing maintenance is easy and inexpensive. But if you have employees, you are required to provide contributions to their accounts.

» MORE: What is a SIMPLE IRA? And how to open one

Although a 401(k) plan can be more complex to establish and maintain, it provides higher contribution limits and gives you more flexibility to decide if and how you want to contribute to employee accounts.

SIMPLE IRA vs. 401(k)

Here are the need-to-know differences between SIMPLE IRAs and 401(k)s:

Source: IRS.gov

SIMPLE IRA vs. 401(k): How to decide

Startup costs and ease of setup often dictate the choice between retirement savings plans. But there are other factors to consider as well. To help decide which plan is best, answer the following questions:

Why are you setting up a retirement plan?

For many small-business owners, the answer is that they’re trying to maximize their own retirement savings dollars. If that’s the case, contribution limits should weigh heavily in your decision. For high earners especially, the higher contribution limit of the 401(k) makes it a more attractive choice than a SIMPLE IRA.

» Thinking about the future? Learn about succession planning for your business .

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Did you know the Roth options have changed?

As mentioned earlier, the IRS allows employers to offer a Roth 401(k). (Quick reminder: A Roth 401(k) is funded with after-tax contributions in exchange for tax-free distributions in retirement.) Previously, there was no Roth provision for SIMPLE IRAs, but a section of Secure Act 2.0 allows SIMPLE IRAs to accept Roth contributions as of January 2023. [0] Senate.gov . SECURE 2.0 Act of 2022 . Accessed Jan 31, 2023. View all sources And the IRS allows participants to save in both a SIMPLE IRA and a Roth IRA at the same time.

Will you need to adjust employer contributions?

Although a nice perk to attract potential employees, employer contributions are not required of companies that offer 401(k) plans. You also have the freedom to set vesting terms, which allows you to require employees remain employed by you for a set time before taking ownership of your contributions to their accounts. Employer contributions to employee SIMPLE IRA accounts are mandatory, though you can choose between two matching arrangements dictated by the IRS. Contributions to a SIMPLE IRA are immediately 100% vested.

» Ready to open a SIMPLE, traditional or Roth IRA? Find the best IRA account for you

simple ira plan for small business

You have other choices

If you are self-employed or a small-business owner, your options may not be limited to SIMPLE IRA vs. 401(k). There are a variety of retirement plans at your disposal.

» MORE: Learn the IRA basics

For example, if you run a business with no employees, a solo 401(k) is worth considering. As the employer and (your own) employee, you’re allowed to contribute a total of up to $66,000 ($73,500 if age 50 or older) in 2023. In 2024, that increases to $69,000, or $76,500 for those 50 and above.

A SEP IRA also has a high contribution limit for business owners and self-employed individuals, though there is no catch-up contribution for savers 50 or older. The drawbacks: Like the SIMPLE IRA, a SEP requires employers to contribute to eligible employee accounts, and Roth contributions are now allowed.

We’ve laid out the pros and cons for these and other retirement plan options for the self-employed .

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(Savings Incentive Match Plan for Employees)

A retirement plan similar in some ways to a 401(k)

  • Easier and less expensive to administer than a typical qualified retirement plan
  • For businesses with 100 employees or fewer
  • Pre-tax employee salary deferrals and federal tax deductible employer contributions
  • Use the Small Business Selector to find a plan

Annual salary deferral limits (if under age 50 for entire calendar year)

$16,000 for 2024 ($15,500 for 2023)

The employer/plan sponsor is required to (a) match each participant's salary deferral contribution on a dollar-for-dollar basis up to 3% (or a lesser percentage under certain limited circumstances) of the participant's compensation (or net earnings from self-employment), or (b) make nonelective contributions of 2% of each eligible employee's compensation (with compensation taken into account for this nonelective contribution capped at $345,000 for 2024/$330,00 for 2023).

Annual salary deferral limits (age 50 or over at any time during the calendar year)

$19,500 for 2024 ($19,500 for 2023)

Why a SIMPLE IRA?

Eligibility information.

Available for self-employed individuals and business owners with fewer than 100 eligible employees

Flexibility

Diversify with a choice of mutual funds, ETFs, stocks, and more

Reduced administrative requirements

For example, IRS Form 5500 filing is generally not required

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SIMPLE IRA FAQs

See all FAQs

Already have a SIMPLE IRA? Contribute now .

 Can a business owner establish a SIMPLE IRA if currently sponsoring another retirement plan?

No. If a business owner currently maintains another employer-sponsored retirement plan, they may not establish a SIMPLE plan for the same tax year when contributions were made to that plan.

 Do employer contributions have to be made to all eligible employees?

It depends. If a non-elective employer contribution option is chosen, contributions have to be made to all eligible employees whether they choose to participate in the plan or not. However, if a matching contribution option is chosen, contributions are only made to employees who are participating in the plan (i.e. making salary deferral contributions) for that year.

 Can an employer or employee make contributions to a SIMPLE IRA while contributing to a Traditional IRA?

Yes. An individual may have both accounts. However, since an individual will be considered an active participant in an employer-sponsored retirement plan, some or all of the contributions to a Traditional IRA may not be deductible. Refer to the Contribution Limits and Deadlines table for more information.

 What are the basic distribution rules for a SIMPLE IRA?

Generally distributions from a SIMPLE IRA are subject to the same distribution rules as a Traditional IRA. SIMPLE IRA distributions may be taken at any time and are generally taxable in the year distribution occurs. Withdrawals taken prior to age 59½ are subject to an additional 10% early distribution penalty. However, if a distribution from a SIMPLE IRA is taken during the 2 year period beginning on the date on which the participant first participated in any SIMPLE IRA plan maintained by their employer, the 10% early distribution penalty is increased to 25%.

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For the self-employed and small businesses

Flexible annual contributions from 0% to 25% of earned income (subject to certain limits).

Traditional and Roth Individual 401(k)

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Retirement plan for business owners and their spouses that is simpler to administer than a typical 401(k).

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What Is a SIMPLE 401(k) Plan?

  • How It Works
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The Bottom Line

  • Retirement Planning

SIMPLE 401(k) Plan: What It Is, How It Works, FAQ

Small business owners should know about this retirement-plan option

simple ira plan for small business

A SIMPLE 401(k) is a retirement savings account offered by small business employers with 100 or fewer employees. The SIMPLE 401(k) works just like a regular 401(k) plan , combining it with the simplicity of a SIMPLE IRA with a few minor changes. Employees can defer some of their wages to the plan and employers must either make a matching or non-elective contribution of a certain amount of each employee's wages.

Employers who are eligible to set up these plans must meet certain eligibility requirements and the Internal Revenue Service (IRS) sets limits on how much can be contributed each year.

Key Takeaways

  • SIMPLE 401(k) plans are retirement savings plans offered by small business employers or companies with 100 or fewer employees.
  • This kind of plan combines the features of traditional 401(k)s with the simplicity of SIMPLE IRAs.
  • Participants must be at least 21 and have one year of service before they can participate.
  • Contributions to the plan are fully vested immediately and employees are allowed to borrow against their account balances.
  • Employees who provide SIMPLE 401(k)s can't offer their employees any other options and contribution limits are lower than traditional 401(k) plans.

How SIMPLE 401(k) Plans Works

As the name implies, the SIMPLE 401(k) is a simplified, stripped-down version of a regular 401(k) plan that is geared toward self-employed individuals and small business owners. And just like SIMPLE IRA accounts, only employers with a staff of 100 or fewer can establish SIMPLE 401(k) plans. Establishing businesses can be structured in any form, including sole proprietors, corporations, and partnerships.

SIMPLE 401(k)s work just like regular 401(k)s. Employees contribute with pre-tax dollars out of their paychecks, investing the funds in options provided by the plan administrator . The IRS limits annual contribution amounts, which are about two-thirds of those allowed for regular 401(k)s. Employees can contribute a maximum of $15,500 in 2023 and $16,000 in 2024. People 50 and over are allowed to deposit an additional catch-up contribution of $3,500 in 2023 and 2024.

All employer contributions to a SIMPLE 401(k) are subject to an employee compensation cap, which is $330,000 for 2023 and $345,000 for 2024. This is one way the  SIMPLE 401(k) differs from a SIMPLE IRA . Unlike traditional 401(k)s, employers are required to make either a matching contribution to their employees' accounts—up to 3% of each employee's pay or a  nonelective contribution of 2% of each eligible employee's pay.

Companies that offer their employees a SIMPLE 401(k) plan must file Form 5500 every year.

SIMPLE 401(k) Rules and Regulations

Employees who are at least 21 years old and completed at least one year of service must be allowed to participate in their employers' SIMPLE 401(k) plans. They must also receive at least $5,000 in SIMPLE compensation from their employers for the preceding year in order to take part.

Funds in a SIMPLE 401(k) must be held in the account until the employee reaches age 59½. Withdrawals made before that point are subject to an early withdrawal penalty of 10%.

The employer must provide a deferral notice to each eligible employee for the year the plan is established and for each year the employer continues to maintain the plan. This notification must be provided at least 60 days before the employee becomes eligible to participate. It must include a statement of the employee's right to make salary deferral contributions and to terminate their participation in the plan.

The "SIMPLE" in a SIMPLE 401(k) plan is short for Savings Incentive Match Plan for Employees of Small Employers.

Advantages and Disadvantages of SIMPLE 401(k)s

There are a number of different benefits to participating in a SIMPLE 401(k) plan. But there are also several drawbacks. We've noted some of the major ones below.

Contributions to a SIMPLE 401(k) are immediately 100% vested . An employee who meets the requirements to receive distributions from the plan may withdraw their entire account balance whenever they like and won't lose it if they switch jobs after the money is in their account.

One of the simplified features is that SIMPLE 401(k) plans do not require nondiscrimination and top-heavy testing to ensure that the plan operates in compliance with IRS rules. Such testing must generally be done by professionals and can be quite costly.

Although withdrawals before the age of 59½ are subject to a penalty, employees can take out loans against their SIMPLE 401(k) balances. They also have the option of making hardship withdrawals from their plans if they need to do so.

Disadvantages

Unlike other retirement options, employer contributions are mandatory for those who offer SIMPLE 401(k) plans to their employees. As noted above, employers have one of two options available. They can contribute either 3% of each employee's pay or they can make nonelective contributions of 2% of each eligible worker's salary.

IRS rules prohibit a company from offering other types of retirement plans to employees already covered by a SIMPLE 401(k). That said, these companies may choose to maintain a separate retirement plan for other employees not covered by the SIMPLE 401(k).

Contribution caps to SIMPLE 401(k)s are smaller than those for traditional 401(k) plans. As noted earlier, employees can only contribute $15,500 in 2023 to a SIMPLE 401(k) plan with catch-up contributions of $3,500 per year for those 50 and older. Though these amounts increased to $16,000 of contributions with the same catch-up of $3,500 in 2024, these amounts are still lower than other retirement plans. For example, taxpayers can set aside $22,500 to their 401(k)s in 2023 and $23,000 in 2024. Catch-up contributions for these plans are $7,500 in both 2023 and 2024.

Immediate 100% vesting for employees

No discrimination testing for employer

Loans and hardship withdrawals allowed

Mandatory contributions (for employer)

No other plans allowed

Smaller employee contributions than regular 401(k)

Lower employee contribution limits

Who Is Eligible for a SIMPLE 401(k)?

A SIMPLE 401(k) is available for small businesses that have 100 or fewer employees who earn more than $5,000 per year.

What Is the Difference Between a SIMPLE 401(k) and a SIMPLE IRA?

Both SIMPLE IRA and SIMPLE 401(k) plans are options for small business owners to provide retirement benefits to themselves and their employees. The key differences are that SIMPLE 401(k)s allow for loans while SIMPLE IRAs do not, and a SIMPLE 401(k) requires employees to be 21 years or older while SIMPLE IRAs have no age restrictions.

How Much Can You Contribute to a SIMPLE 401(k)?

A SIMPLE 401(k) limits employees to $15,500 in contributions for 2023 and $16,000 in 2024. This is in contrast to a traditional 401(k), which has a $22,500 limit in 2023 and a $23,000 limit in 2024. Individuals may also qualify to make catch-up contributions for both plans.

Can I Have a SIMPLE 401k and a Traditional IRA?

Yes, you can maintain and contribute to an individual retirement account (IRA) while also having and contributing to an employer-sponsored SIMPLE 401(k) plan.

Helping your employees save for retirement is a great way to keep turnover rates down and retention up. It doesn't hurt in attracting talent, either—keeping a small firm competitive with the perks offered by larger corporations.

While SIMPLE 401(k) plans have a lot of benefits, such as easy-to-manage rules, they do have some disadvantages when compared with other savings plans. The mandatory contributions and the paperwork, simplified though it is, can be a burden.

As a result, they're not for every company but then, few options are. Consult with 401(k) plan providers and your team of tax professionals to see if this retirement vehicle is the best suited for you and your staff .

Internal Revenue Service. " Choosing a Retirement Plan: SIMPLE 401(k) Plan ."

Internal Revenue Service. " 401(k) Limit Increases to $23,000 for 2024, IRA Limit Rises to $7,000 ."

Internal Revenue Service. " 2024 Limitations Adjusted as Provided in Section 415(d), etc.; Notice 2023-75 ." Page 1.

Internal Revenue Service. " 401(k) Plans for Small Businesses ." Page 4.

Internal Revenue Service. " 401(k) Plan Overview ."

Internal Revenue Service. " Publication 560, Retirement Plans for Small Business ." Pages 14, 17.

Internal Revenue Service. " SIMPLE IRA Plan ."

Internal Revenue Service. " Choosing a Retirement Solution for Your Small Business ." Page 4.

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  • 401(k) Fees: Everything You Need to Know 3 of 20
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  • Income Limits for 401(k)s: Highly Compensated Employees 5 of 20
  • What to Do After You Have Over-Contributed to Your 401(k) 6 of 20
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  • How Is Your 401(k) Taxed When You Retire? 12 of 20
  • Can Your 401(k) Impact Your Social Security Benefits? 13 of 20
  • Managing Your Own 401(k): The Pros and Cons 14 of 20
  • What Is a Solo 401(k) or Self-Employed 401(k)? Contribution Limit 15 of 20
  • SIMPLE 401(k) Plan: What It Is, How It Works, FAQ 16 of 20
  • Small Business 401(k)s: How to Leverage the Multiple Employer DOL Rule 17 of 20
  • Can I Fund a Roth IRA and Contribute to My Employer’s Retirement Plan? 18 of 20
  • Must-Know Rules for Converting Your 401(k) to a Roth IRA 19 of 20
  • What Are the Risks of Rolling My 401(k) Into an Annuity? 20 of 20

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Retirement Plan Options for 1099 Employees

Retirement planning can be trickier if you're freelancing. Here are some great account options.

1099 Worker Retirement Options

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Just because you freelance doesn't mean there aren't retirement plans for you.

If you're one of the growing number of independent contractors, retirement planning can sometimes seem daunting given the lack of access to a traditional retirement account like a 401(k). Fortunately, there are plenty of tax-advantaged options available for 1099 workers.

As an independent contractor, a team of advisors can make a big difference to your bottom line in retirement. While doing it yourself is possible, good tax and financial professionals can easily justify their fees due to the savings that come from their advice and expertise. There are many resources now available that enable all contractors to easily get quality financial advice, even with limited funds. Make sure that your advisors are working together to give you an accurate picture.

Your role is to successfully kick off this planning. You should come to the table with the information to create a cash-flow statement. This includes the details for all inflows and accounts payable, as well as outflows such as rent, utilities and insurance. With just a few months of data, you will quickly be able to ascertain key fluctuations in income, as well as to find periods when money is easier to allocate for the future. Your advisors will be able to determine qualifications for qualified retirement plans, where significant tax savings can occur.

The IRS has strict limits on qualifications for these retirement plans. 1099 workers may not be eligible or the allowable contribution may be reduced if they also have W-2 employment or a spouse that has access to a retirement plan. The tax code changes frequently, and only a professional tax advisor can give you specific tax advice. At this time, artificial intelligence is not always able to keep up with the pace of tax changes, so this is another important reason to have a great team assisting you.

Additionally, the SECURE 2.0 Act passed by Congress has numerous new provisions that are coming to bear in 2024, including new penalty-free withdrawals under circumstances such as being the victim of domestic violence, a first-time homebuyer, certified by a physician as being terminally ill or located in a federal disaster area. Qualifying birth or adoption expenses can also receive penalty-free access. These provisions inject an important source of liquidity to a participant who has incurred a major life event or experienced an unforeseen emergency, but they should be reviewed carefully.

Overall, retirement plan options for 1099 workers have grown significantly, and each has its distinct advantages and limitations. Once you are in position to set aside funds, here is a list of popular options:

  • Traditional individual retirement account, or IRA.
  • Simplified employee pension (SEP) IRA.
  • Savings incentive match plan (SIMPLE) IRA.
  • Solo 401(k).
  • Health savings account (HSA).
  • Defined benefit plan.

Traditional IRA

Anyone can establish a traditional IRA. Contributions to traditional IRAs are tax deductible. So, if you put the $7,000 limit for 2024 into an IRA ($8,000 for those age 50 or older), your taxable income for the year decreases by that amount as long as you don't have an employer-sponsored retirement plan. If you are married and filing jointly with a spouse who has an employer-sponsored plan, you can still make the full deduction if your modified adjusted gross income doesn't exceed $230,000.

Funds grow tax-deferred, and retirement distributions will be taxed at your ordinary income tax rate for that year. Additionally, distributions made before age 59 1/2 will be subject to a penalty. Traditional IRAs have required minimum distributions (RMDs) beginning at age 73. Even if you do not need the money, you must take a distribution or incur a substantial penalty. RMDs are calculated using both the person's life expectancy and the IRA account size.

This account is for singles whose 2024 modified adjusted gross income is less than $161,000; married couples who file jointly can make at least a partial contribution if their income is under $240,000. While no tax deduction is associated with a Roth IRA, its high appeal to self-employed participants is that earnings will grow tax-deferred and retirement income from the account will be tax-free. In 2024, if you are less than 50 years old, the maximum contribution is $7,000. Older investors are eligible for an additional catch-up contribution of $1,000, for a total of $8,000.

Under the new provisions in the SECURE 2.0 Act , you may be able to contribute to your Roth IRA with rollover 529 plan assets. This rollover option is not available for traditional IRAs.

Simplified Employee Pension (SEP) IRA

A SEP IRA can be set up for both the employer and the employees of a business to provide a valuable employee benefit. Employees cannot contribute their own money, but their withdrawals are still taxed as ordinary income. The maximum allowed contribution for 2024 is $69,000 or 25% of compensation, whichever is less.

While SEP plans are easy to set up and administer, owners must contribute the same percentage to all their employees as they contribute to their own plan. Like traditional IRAs, withdrawals are taxed as ordinary income and subject to both early withdrawal and RMD rules.

Savings Incentive Match Plan (SIMPLE) IRA

SIMPLE plans vary from SEP plans in that they will allow a business owner's employees to make contributions to their accounts, alongside employer contributions. Contributions are tax deductible, and this can result in a lower tax bracket overall. Business owners love SIMPLEs because they can offer a desirable employee benefit very inexpensively without the need for plan administration services. Retirement income is taxed like a traditional IRA. The SIMPLE IRA employee contribution limit is $16,000 in 2024. There is also a $3,500 catch-up contribution available to workers who are age 50 or older.

Solo 401(k)

This plan, called the "One Participant 401(k)" by the IRS, allows solo business owners to enjoy the benefits of a corporate 401(k). The plans are reserved exclusively for the owner (and their spouse, if applicable) who has no employees and earns a maximum of $345,000. In 2024, you can contribute a maximum of $69,000, and an additional catch-up contribution of $7,500 is available to those 50 or older. Deductibility and income taxes upon distribution depend on whether the business owner selects a traditional plan or the Roth option. A plan administrator is needed, and those fees can add as much as $2,000 to the cost, depending on the provider.

In these plans, the business owner is considered both as the employer and the employee for contribution purposes. These limits apply within the overall maximum contribution:

  • Employee   contributions are to a maximum of $23,000 in 2024, or 100% of compensation, whichever is less. A catch-up contribution of $7,500 is available to those 50 and older. 
  • Employer   contributions are made as an additional profit-sharing contribution. This contribution is 25% of either compensation or net self-employment income. The latter is calculated as net profit less half of self-employment tax and the plan contribution made as an employee. 

Health Savings Account (HSA)

HSAs are the unsung heroes for the self-employed because they not only enable one to save for retirement, but they also allow the business owner to accumulate funds on a tax-advantaged basis to pay for qualified health, dental, vision and pharmacy expenses. An HSA is established with a qualified high-deductible health plan. There are no taxes on the contributions, the account growth or any distributions that pay for qualified expenses not reimbursed by the health plan provider. All contributions are vested and assets are carried over at the end of the year.

An HSA cannot be set up if you have multiple health care plans or you are enrolled in Medicare, or if you can be claimed as an dependent on another person's tax return. In 2024, the maximum HSA contribution is $4,150 for an individual and $8,300 for a family. HSAs are also eligible for a $1,000 catch-up contribution, although the qualifying age is a bit higher, at 55 or older.

Defined Benefit Plan

These pension plans are among the oldest in the tax code, but they fluctuate in and out of favor depending on the economy. With inflation keeping pressure on interest rates, they are coming back in vogue.

Defined benefit plans provide guaranteed income in retirement. Higher contribution limits can also provide significant tax deductions, especially if an older business owner has the capability to make consistent contributions for a set period.

These plans can be complex, making them expensive to administer. Additionally, not all businesses are good candidates for this type of plan. A financial advisor is invaluable to determine if this is a viable option for a business and to recommend plan administration services.

The Takeaway

There are now more retirement options for 1099 workers than ever, increasing the complexity of making the best decision for you and your business or side gig. A great CPA, working alongside your financial advisor , can quickly help you select the best option. Additionally, they can combine these plans, such as crafting a backdoor Roth IRA, to generate additional tax savings that will allow you to put even more money away for retirement. Most importantly, they can also make sure that you truly qualify for a particular option and take your distributions properly, given all the IRS boxes that have to be checked.

How to Open a Roth IRA

Brian O'Connell Jan. 25, 2024

Concentrated young student using online banking to pay the bills

Tags: money , investing , retirement , IRAs , 401(k)s

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SIMPLE IRA Tips for the Sole Proprietor

More in retirement plans.

  • Types of Retirement Plans
  • Required Minimum Distributions
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  • Operate a Retirement Plan
  • Topic Index

If you are a Schedule C filer (a sole proprietor) and have a SIMPLE IRA plan, you are treated as both an employer and an employee when calculating and reporting your own plan contributions and limits. Here are some tips.

Where do I report the contributions I make for myself to my SIMPLE IRA?

Report both your salary reduction contributions and employer contributions (non-elective or matching) for yourself on Part II - line 15 of Form 1040 Schedule 1.

This is different from reporting employer contributions (non-elective or matching) for your common-law employees, which you would do as a business expense on your Schedule C.

When must I deposit the contributions I make for myself to my SIMPLE IRA?

You must deposit your salary reduction contributions within 30 days after the end of the tax year. For most people, this means salary reduction contributions for a year must be made by January 30 of the following year.

You must deposit your employer contributions by the due date (including extensions) of your federal income tax return for the tax year that includes the last day of the calendar year for which you made the contributions. For most people, this means employer contributions for a year must be made by April 15 of the following year, or by October 15 if on extension.

What is the maximum contribution I may make for myself to my SIMPLE IRA?

Salary reduction contributions.

You may defer up to $15,500 in 2023, $14,000 in 2022, $13,500 in 2021 and in 2020 and $13,000 in 2019 (adjusted  cost-of-living in later years). However, you may not exceed your net earnings from self-employment from the business sponsoring the SIMPLE IRA plan. If you are age 50 or over, you can make a catch-up contribution of up to $3,500 in 2023 ($3,000 in 2022, 2021, 2020 and 2019 adjusted for cost-of-living in later years).

Employer contributions

Employer contributions for yourself must be the same type and rate as the contributions you make for your common-law employees. You must either:

  • match your salary reduction contributions dollar-for-dollar up to 3% of your net earnings from self-employment; or
  • make a non-elective contribution of 2% of your net earnings from self-employment that do not exceed $330,000 in 2023; ($305,000 in 2022; $290,000 for 2021 and $285,000 for 2020). This amount was $280,000 for 2019, and it is adjusted for cost-of-living in later years.

Your net earnings from self-employment is the amount you report on line 4 of Short Schedule SE or line 6 of Long Schedule SE (Form 1040) before you subtract any SIMPLE IRA plan contributions you make for yourself.

Your business sponsors a SIMPLE IRA plan. In 2013, your employee, John, earned $25,000 and chose to defer 5% of his salary. Your net earnings from self-employment was $40,000 (as reported on your Form 1040, Schedule SE), and you chose to defer 10% of your earnings to your SIMPLE IRA. You elected to make 3% matching contributions for 2013 for all your employees.

The total SIMPLE IRA plan contribution for John is $2,000.

You deduct John’s contribution on your Form 1040, Schedule C. You must deposit John’s $1,250 salary reduction contributions to his SIMPLE IRA:

  • at the earliest date on which you can reasonably segregate them from your business’ general assets, but no later than 30 days following the month in which John would have otherwise received the money; or
  • within 7 business days after John would have otherwise received the money, to meet the Department of Labor’s 7-day safe harbor for SIMPLE IRA plans with fewer than 100 participants.

You must deposit the $750 employer matching contribution no later than the due date of your federal income tax return, including extensions.

Your total plan contribution is $5,200.

You deduct the plan contributions for yourself on line 28 of your Form 1040. You must deposit your $4,000 salary reduction contribution to your SIMPLE IRA no later than January 30, 2014. You must deposit the $1,200 employer matching contribution no later than the due date of your federal income tax return, including extensions.

Additional resources

  • Self-Employed Individuals – Calculating Your Own Retirement-Plan Contribution and Deduction
  • Publication 560, Retirement Plans for Small Business
  • Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs)
  • Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs)
  • FAQs – SIMPLE IRA Plans
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Bankrate

Roth solo 401(k): What it is and who should get one

Portions of this article were drafted using an in-house natural language generation platform . The article was reviewed, fact-checked and edited by our editorial staff .

If you’re a solo entrepreneur, saving for retirement might be the last thing on your mind. A Roth solo 401(k) plan can help you start saving while offering appealing tax advantages.  This retirement plan  allows contributions by a business owner and their spouse who is involved in the business. Plus, any business partners and their involved spouses can participate in their own Roth solo 401(k) plans. The plan is generally limited to one-person businesses, though business partners and spouses are also eligible to participate.

The Roth solo 401(k) offers a number of great benefits for those who can take advantage of it.

What is a Roth solo 401(k)?

A Roth solo 401(k) is a special kind of solo 401(k) account that allows participants to make after-tax contributions. The biggest benefit is that the contributions can grow on a tax-free basis and then be withdrawn tax-free after age 59 ½, so long as the account’s been open for at least five years. So if you use a Roth solo 401(k), you’ll never have to pay taxes again on your contributions and earnings.

A Roth solo 401(k) offers the same contribution limits as a Roth 401(k) with a normal employer. For 2023, the contribution limit is $22,500 and for 2024 it’s $23,000. Those  50 and over can make a $7,500 catch-up contribution. The employer can make profit-sharing contributions to the plan for participants, bringing the total maximum annual contribution to $66,000, plus the additional catch-up for older savers.

Employer contributions, however, must be made to a traditional solo 401(k) account, not the after-tax Roth portion of the account.

One key difference between the Roth solo 401(k) plan and other self-employed retirement plans is that employees can contribute all of their salary up to the annual maximum, and they’re not limited to the 25 percent cap other plans impose. For example, if you have a side gig and earn just $16,000 doing it, you could hide it all away in a Roth solo 401(k) each year. With a Roth IRA, you are limited to a yearly contribution limit of $6,500 in 2023 or $7,000 in 2024, a mere fraction of what you can save in a Roth solo 401(k.

It’s important to note that employee contributions across all your 401(k) accounts cannot exceed the annual cap, $22,500 in 2023 and $23,000 in 2024, for those under age 50 with an additional amount of $7,500 for older workers. But even if you’ve hit that limit, you could still make an employer contribution to your Roth solo 401(k), if you have profits from your side gig, up to the combined annual limit there ($66,000 for those under age 50 in 2023), which also includes any matching funds from a main employer.

You’ll also need to find a plan custodian that offers a  Roth solo 401(k) option. Not all of them do.

Who should consider opening a Roth solo 401(k)?

A Roth solo 401(k) can be an excellent option for a self-employed individual or an eligible spouse who wants to contribute more to a Roth account than would be allowed with a Roth IRA . Additionally, unlike a Roth IRA, the Roth solo 401(k) has no income limitations that reduce or prohibit participants from contributing.

Once a person ceases employment with the business associated with the solo 401(k) account, they can roll it over to a Roth IRA to avoid the required minimum distributions that must otherwise begin at age 72.

Whether or not contributing to the Roth option makes sense will depend on the individual’s overall situation including their tax status and the balance they have between Roth and traditional retirement accounts.

Other small business retirement plans to consider

Other small business retirement plans offer a variety of features that may fit your needs better than a Roth solo 401(k).

A SEP IRA is a type of IRA plan for small businesses that allows contributions for employees as well as for the business owner. The contributions are made solely by the employer up to a limit of $651,000, or 25 percent of the employee’s compensation, whichever is less. As a practical matter, SEP IRAs can be expensive if there are numerous employees, as business owners are required to make the same percentage contribution for the employees as they do for themselves.

Unfortunately, a SEP IRA does not offer a Roth option.

A SIMPLE IRA is a small business retirement plan limited to companies with 100 or fewer employees. The main appeal with this option is that there’s minimal paperwork for the business owner. Employee contribution limits for a SIMPLE IRA are $15,500 in 2023, with a limit of $19,000 for those age 50 and older. There is also a mandatory employer contribution as well, and employers are required to fully match employees’ contributions up to 3 percent of salary or make non-elective contributions of up to 2 percent of all employees’ salary.

A SIMPLE IRA can also be used by someone who is self-employed. There are restrictions on rolling a SIMPLE IRA over within the first two years that the plan was opened.

A SIMPLE IRA does not offer a Roth option.

An option to be considered by itself or in conjunction with a small business retirement plan is an IRA . Whether or not you can contribute to a Roth IRA will depend upon your income. But as long as you have earned income, you can take advantage of an IRA, even if it is non-deductible.

Bottom line

For those who are self-employed in a one-person business, a solo 401(k) can be an excellent option. A Roth solo 401(k) offers higher contribution limits than a Roth IRA without the income limitations that accompany a Roth IRA. For those who are self-employed and want to contribute to a Roth account, a Roth solo 401(k) can be a solid option to consider.

Roth solo 401(k): What it is and who should get one

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  4. Tax-Saving Strategies for Real Estate Investors

  5. Your 401k & IRA plan administrator will notify you when and how much REQUIRED MINIMUM DISTRIBUTION y

  6. Retirement Investment: How Can I Reduce Risk and Enhance My Return?

COMMENTS

  1. SIMPLE IRA Plans

    SIMPLE IRA. Fidelity's Savings Incentive Match Plan for Employees (SIMPLE IRA) makes it easier for self-employed individuals and small-business owners with 100 or fewer employees to offer tax-advantaged retirement plans. With Fidelity, you have no account fees and no minimums to open an account. 1 You'll get exceptional service and guidance ...

  2. SIMPLE IRA Plan

    A SIMPLE IRA plan allows employees and employers to contribute to traditional IRAs set up for employees. It is a start-up retirement savings plan for small employers not currently sponsoring a retirement plan. Learn how to choose, set up, operate and maintain a SIMPLE IRA plan, and its advantages and disadvantages.

  3. What Is a Simple IRA Plan & How To Invest in One

    Employer contribution limits. Option 1. Dollar-for-dollar match of employee contributions up to 3% of each employee's compensation (which can be reduced to as low as 1% in any 2 of 5 years). Option 2. A contribution of 2% of each employee's compensation. The maximum compensation used to determine this contribution is $330,000 for 2023 and ...

  4. Retirement Plans FAQs regarding SIMPLE IRA Plans

    A SIMPLE IRA plan provides small employers with a simplified method to contribute toward their employees' and their own retirement savings. Employees may choose to make salary reduction contributions and the employer is required to make either matching or nonelective contributions. Contributions are made to an Individual Retirement Account or ...

  5. Simple IRA

    SIMPLE IRA. A Savings Investment Match Plan for Employees (SIMPLE IRA) is an easy and low-cost way to set up a retirement program for self-employed individuals and small businesses with 100 or fewer employees. Eligible employees can fund their own SIMPLE IRA accounts through regular salary deferrals and Employers make additional contributions.

  6. What Is A SIMPLE IRA?

    A SIMPLE IRA is a retirement savings plan tailored to the needs of small business owners and sole proprietors. Like other workplace retirement plans, both employers and employees can contribute to ...

  7. What Is a SIMPLE IRA? Retirement Plan Rules, FAQs

    A SIMPLE IRA is a type of tax-deferred retirement plan for small businesses with fewer than 100 employees. While it is considered an employer-sponsored retirement plan — and employer ...

  8. SIMPLE IRA: Definition, How Small Businesses Use, and Drawbacks

    SIMPLE IRA: A retirement plan that can be used by most small businesses with 100 or fewer employees. SIMPLE stands for "Savings Investment Match Plan for Employees"; IRA stands for ...

  9. SIMPLE IRA Plans for Small Businesses

    A SIMPLE (Savings Incentive Match Plan for Employees of Small Employers) IRA plan offers great advantages for businesses that meet two basic criteria. Your business must have no more than 100 employees who earned $5,000 or more during the preceding calendar year. Your business cannot currently have another retirement plan.

  10. Choosing a SIMPLE IRA Plan

    A Savings Incentive Match Plan for Employees (SIMPLE) IRA allows participants to defer part of their salary into the plan. It also requires a contribution from the employer each year. It's easy to get started with a SIMPLE IRA PDF. Just complete and sign the two-page IRS Form 5304-SIMPLE PDF or Form 5305-SIMPLE PDF, and share the model ...

  11. SIMPLE IRA Rules and Contribution Limits for 2023 and 2024

    A SIMPLE IRA is a retirement savings plan available to any small business or self-employed worker with 100 or fewer employees in a calendar year. A SIMPLE is established by the business owner filling out a plan document to set the terms of the plan.

  12. SIMPLE IRA Plan for Small Business Owners

    Learn how to set up and benefit from a SIMPLE IRA plan, a tax-advantageous retirement account for small businesses with no more than 100 employees. Find out the qualifications, advantages, contribution limits, and withdrawal rules for this type of IRA.

  13. Explore SIMPLE IRA Retirement Plans for Small Business

    SIMPLE IRA Features. Contribute significantly more than you could with a traditional IRA 2. Make fixed contributions that are generally tax deductible by the business 3. Help fund your employees and your own retirement with a cost-efficient plan. Options beyond State Mandated Programs to grow with your business.

  14. What Is a SIMPLE IRA?

    A SIMPLE IRA is a retirement savings plan for small business owners and self-employed individuals. Learn how it works and if it might be right for you. ... A SIMPLE IRA is for small business owners and their employees. A traditional IRA is for anyone with an earned income. The eligibility criteria is different for the two plans. To be eligible ...

  15. Small-business retirement plans

    SE 401(k): Self-employed individual or business owner with no employees other than a spouse. SEP IRA: Self-employed individual or small business owner, primarily those with only a few employees. 1. Fidelity Advantage 401(k): Small and medium- sized businesses looking to offer a 401(k) for the first time. SIMPLE IRA: Self-employed individuals or businesses with 100 or fewer employees.

  16. What you should know about: SIMPLE IRA Plans

    Now, let's look at the requirements for maintaining a SIMPLE IRA to help you decide if this is the right plan for your small business. To set up your SIMPLE IRA Plan, you must complete Form 5304-SIMPLE or Form 5305-SIMPLE. You could also adopt a prototype document issued by a financial institution or an individually designed plan.

  17. What Is a SIMPLE IRA and How Does It Work?

    SIMPLE IRA, which stands for Savings Incentive Match Plan for Employees Individual Retirement Accounts, is employer-sponsored. This means it is offered to employees through a business. These types of retirement plans are made specifically for small businesses with 100 or fewer employees. Your employees can participate in the plan if they made ...

  18. Small business retirement plans

    Size up your retirement plan. Get to know the retirement plans that Vanguard offers for small businesses: the SEP-IRA, the SIMPLE IRA, the Individual 401 (k), and the Small Plan 401 (k). Try our interactive tool to see which plan may be best for you and your business.

  19. SEP IRA: Simplified Employee Pension Plan for Small Business

    A SIMPLE IRA allows both the business owner and the employees to make contributions. Learn more about all small business solutions available at Merrill. Get started with a SEP IRA in 3 easy steps. 1. ... Get more details about small business retirement plans available at Merrill and find the one that works best for your needs.

  20. SIMPLE IRA vs. 401(k): The Pros and Cons of Each Plan

    The SIMPLE IRA vs. 401 (k) decision is, at its core, a choice between simplicity and flexibility for employers. The aptly named SIMPLE IRA, which stands for Savings Incentive Match Plan for ...

  21. SIMPLE IRA

    Withdrawals taken prior to age 59½ are subject to an additional 10% early distribution penalty. However, if a distribution from a SIMPLE IRA is taken during the 2 year period beginning on the date on which the participant first participated in any SIMPLE IRA plan maintained by their employer, the 10% early distribution penalty is increased to 25%.

  22. SIMPLE 401(k) Plan: What It Is, How It Works, FAQ

    SIMPLE 401 (k) plans are retirement savings plans offered by small business employers or companies with 100 or fewer employees. This kind of plan combines the features of traditional 401 (k)s with ...

  23. PDF FOR SMALL BUSINESSES

    Starting a SIMPLE IRA plan is easy! Step 1: Contact a retirement plan professional or a representative of a financial institution that offers retirement plans. Many financial institutions will have a pre-approved SIMPLE IRA plan form that you can review. Step 2: Choosing a financial institution to maintain employees' SIMPLE IRAs is one of the ...

  24. Retirement Plan Options for 1099 Employees

    This plan, called the "One Participant 401 (k)" by the IRS, allows solo business owners to enjoy the benefits of a corporate 401 (k). The plans are reserved exclusively for the owner (and their ...

  25. PDF Simple IRA Plans for Small Businesses

    SIMPLE (Savings Incentive Match Plan for Employees of Small Employers) IRA plan offers great advantages for businesses that meet two basic criteria. Your business must have no more than 100 employees who earned $5,000 or more during the preceding calendar year. Your business cannot currently have another retirement plan.

  26. SIMPLE IRA Tips for the Sole Proprietor

    Your net earnings from self-employment is the amount you report on line 4 of Short Schedule SE or line 6 of Long Schedule SE (Form 1040) before you subtract any SIMPLE IRA plan contributions you make for yourself. Example. Your business sponsors a SIMPLE IRA plan. In 2013, your employee, John, earned $25,000 and chose to defer 5% of his salary.

  27. Roth solo 401(k): What it is and who should get one

    A SIMPLE IRA is a small business retirement plan limited to companies with 100 or fewer employees. The main appeal with this option is that there's minimal paperwork for the business owner.