Types of Contributions
The tax code permits two types of contributions to a SIMPLE IRA account:
- Elective deferrals contributed by the employee
- Matching contributions or nonelective contributions made by the employer
Employee Deferrals
Under a SIMPLE plan, an employee may elect to contribute a percentage of compensation up to the annual dollar limit. The contribution formula is expressed as a percentage of compensation, not a flat dollar amount, so not every employee may reach the maximum. SECURE Act 2.0 introduced tiered limits based on employer size:
| Employer Size | Under Age 50 | Age 50–59 / Age 64+ | Age 60–63 (Super Catch-Up) |
|---|---|---|---|
| 26–100 employees (standard) | $17,000 | $21,000 (+$4,000) | $22,250 (+$5,250) |
| 25 or fewer employees — OR — 26–100 employees with enhanced employer contribution* | $18,100 | $21,950 (+$3,850) | $23,350 (+$5,250) |
The age 60–63 super catch-up is a SECURE Act 2.0 addition effective beginning in 2025. Employees who reach age 60, 61, 62, or 63 during the calendar year may defer an extra $5,250 instead of the standard catch-up. At age 64, the contribution reverts to the standard catch-up amount.
Any SIMPLE IRA deferral counts toward the employee’s overall annual elective deferral limit that applies cumulatively across all SIMPLEs, SARSEPs, 401(k) plans, and 403(b) annuities the employee may participate in. The overall 402(g) limit for 2026 is $24,500 (under age 50) or $32,500 (age 50+).
Employer Contribution Formulas
SIMPLE plans require employers to contribute to employees’ accounts. Employers must satisfy one of two formulas:
Under the matching formula, employers match a participating employee’s contributions dollar-for-dollar, up to a maximum of 3% of the employee’s compensation for the year. For SIMPLE IRAs, the employee’s actual total compensation is used (with no cap on the compensation amount for matching purposes).
As an alternative, employers may elect to match at a rate less than 3% — but no lower than 1% — for a given year. The employer must notify employees of the lower percentage within a reasonable time before the 60-day election window. Additionally, the employer may not elect a rate below 3% in more than two of the past five years.
A matching contribution formula requires a contribution every year. If an employee chooses to defer, the employer must match (to some extent) — the employer cannot skip contributions due to financial difficulties.
| Participant | Elective Deferral | Match (3% cap) | Total |
|---|---|---|---|
| Hannah | 5% × $50,000 = $2,500 | 3% × $50,000 = $1,500 | $4,000 |
| Chris | 1% × $50,000 = $500 | dollar-for-dollar = $500 | $1,000 |
| Jack | 0% = $0 | $0 | $0 |
| Samantha | 4% × $250,000 = $10,000 | 3% × $250,000 = $7,500 | $17,500 |
Under the nonelective formula, an employer contributes 2% of compensation for each eligible employee regardless of whether that employee chooses to defer. When calculating nonelective contributions to a SIMPLE IRA, compensation is limited to the first $360,000 (2026, inflation-adjusted). The employer must notify each eligible employee of the nonelective contributions before the 60-day election period.
| Participant | Elective Deferral | Nonelective (2%) | Total |
|---|---|---|---|
| Hannah | 5% × $50,000 = $2,500 | 2% × $50,000 = $1,000 | $3,500 |
| Chris | 1% × $50,000 = $500 | 2% × $50,000 = $1,000 | $1,500 |
| Jack | $0 | 2% × $50,000 = $1,000 | $1,000 |
| Samantha | 4% × $250,000 = $10,000 | 2% × $250,000 = $5,000 | $15,000 |
The mandatory annual contribution requirement may make SIMPLE plans less attractive for small employers with fluctuating profits. A SEP plan, which does not mandate annual contributions, may be a more flexible alternative. Similarly, owners seeking to maximize their own retirement contributions may prefer a traditional Keogh or profit-sharing plan that allows higher annual amounts.
Deductibility & Timing of Contributions
Employers may deduct contributions to a SIMPLE plan for the year in which they are made — including the employee’s elective deferrals (which are treated as deferred compensation). Employers may deduct matching contributions provided they are made by the tax return due date including extensions. All SIMPLE plans operate on a calendar year basis; if the employer uses a fiscal tax year, the deduction is claimed when the tax year ends.
All contributions (elective deferrals and employer matching or nonelective contributions) are excluded from the employee’s gross income for federal income tax purposes. However:
- Employee elective deferrals are subject to FICA (Social Security/Medicare) and FUTA (federal unemployment) taxes
- Employer contributions are not subject to federal payroll taxes
Eligible employees participate by making elective deferrals during a minimum 60-day window before January 1 of each year (some plans offer 90 days; others provide a 30-day window each quarter). During this window, employees decide whether to contribute and at what percentage. Employees may also modify the amount they previously elected.
Employers must notify employees of their eligibility and of the type of employer contribution (matching vs. nonelective) for the upcoming year. All notices must be provided within a reasonable period before the election window opens.
Employees may terminate participation at any time during the calendar year by stopping their contributions; however, the employer may restrict an employee from resuming contributions until the following calendar year.
Employee contributions must be deposited into the employee’s SIMPLE IRA within 30 days of the end of the month in which they would otherwise have been paid. Employer matching or nonelective contributions must be made by the tax return due date including extensions.
All contributions to an employee’s SIMPLE account must be nonforfeitable — every contribution is immediately, 100% vested. Amounts held in a SIMPLE IRA may be withdrawn without restriction (subject to general IRA rules and the two-year penalty period) at any time.