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Small Business Retirement Plans > SIMPLE IRA

Please Note:  A SIMPLE IRA Plan must be set up by October 1st to be considered established for the current tax year.



Why choose a Savings Incentive Match Plan for your employees? (SIMPLE IRA)


  • SIMPLE plans were designed to encourage more small companies to establish retirement plans.
  • SIMPLE IRAs are less complicated to set-up and administer than traditional 401(k)s and allow for salary deferral contributions to IRA accounts.
  • Salary deferral contributions made by employees and employer contributions made to the participant's SIMPLE IRA are deductible by the employer.
  • Complicated non-discrimination testing and 5500 reporting is not required.
  • Earnings accumulate in the account tax-deferred.
  • Employees consider salary deferral plans a valuable benefit.
  • Employer has no fiduciary responsibility. Contributions are invested in individual's IRA, and individual makes all investment decisions.
  • For more information visit www.irs.gov.



Employee Eligibility

SIMPLE IRA plans are limited to employers with less than 100 or fewer employees during the preceding year who received at least $5,000 in compensation from the employer.

Can defer up to 100% of compensation for the year (reduced by your other elective deferrals for the year) not to exceed $13,500 (2020). 



Eligible Employees

You must be allowed to participate in your employer's SIMPLE plan if you:
  • Received at least $5,000 in compensation from your employer during any 2 years prior to the current year, and

  • Are reasonably expected to receive at least $5,000 in compensation during the calendar year for which contributions are made. 


Self-employed individuals:

For SIMPLE plan purposes, the term employee includes a self-employed individual who received earned income.



Excludable employees:   

    Your employer can exclude the following employees from participating in a SIMPLE plan.
  • Employees whose retirement benefits are covered by a collective bargaining agreement (union contract).

  • Employees who are nonresident aliens and received no earned income from sources within the United States.

  • Employees who would not have been eligible employees if an acquisition, disposition, or similar transaction had not occurred during the year.



Please note:

  • Plan may not be established for the current year after October 1st.

  • The employer may not maintain any other employer sponsored retirement plan for the year for which the SIMPLE plan is maintained.

  • Eligible entities include corporations, partnerships, tax-exempt organizations, corporations, and sole proprietors.



Employee Education

  • Place Trade offers Employee Education for employers who are setting up or transferring their SIMPLE IRA (as well as other business retirement plans) to help employees understand what the plan is, how the plan works and how it will benefit them.

  • We understand that your Fiduciary Responsibility to your employees is of the utmost importance. Call us today at 1-800-50-PLACE or 1-919-719-7200 for a Free Guide to understanding your fiduciary responsibility as an employer when it comes to retirement planning.




SIMPLE IRA Contributions

  • When an employee elects to make salary deferral contributions to a SIMPLE IRA account, there is no limit on the percentage of the salary deferral; and the employee may elect to defer up to 100% of his compensation, provided the total contribution amount does not exceed the annual deferral limit.
  • The elective deferral limits for SIMPLE IRAs are presented below along with additional "catch up" salary deferral contributions may be made to SIMPLE IRA accounts for participants who have attained the age of 50 by year-end.


Simple IRA Contributions/Participant deferrals



Limit - Under 50


Total - 50 and over






Subject to cost-of-living adjustments for later years.

Subject to cost-of-living adjustments for later years.

Subject to cost-of-living adjustments for later years.


  • All participant contributions are immediately vested.
  • The participant controls the distributions.

(Elective deferrals to a SIMPLE IRA are excluded from the gross income of the participant)

Employer Contributions

An employer who sponsors a SIMPLE plan must make some type of contribution for his employees; however, he has the option of making either matching contributions or non-elective contributions for any tax year.


How much do I have to contribute to my employees who are participating in our SIMPLE IRA plan?


You're generally required to either:

  • match each employee's salary reduction contribution on a dollar-for-dollar basis up to 3% of the employee's compensation (not limited by the annual compensation limit), or
  • make nonelective contributions of 2% of the employee's compensation up to the annual limit of $285,000 for 2020 ($280,000 for 2019), subject to cost-of-living adjustments in later years. If you choose to make nonelective contributions, you must make them for all eligible employees whether or not they make salary reduction contributions.



Employer Contributions Options for 2020


Employer Contribution Option 1

Dollar per Dollar up to 3% of income

Employer Contribution Option 2

2% Non-elective contribution


Option 1: If the employer chooses matching contributions, he is generally required to match the employee's elective deferral contribution dollar for dollar up to 3% of the employee's compensation.

Option 2: If the employer chooses non-elective contributions, he is required to contribute an amount equal to 2% of each eligible employee's compensation for each employee who is eligible to participate and has earned at least $5,000 in compensation for the year.



SIMPLE Rollovers and Transfers

Rollovers and transfers must only be made between SIMPLE accounts, not between SIMPLE and other IRA accounts. After the two-year holding period has elapsed, the participants may rollover assets from the SIMPLE account to an IRA, or convert the assets to a Roth IRA.


Simple Distributions

Distributions from a SIMPLE IRA are taxed as ordinary income when distributed. Distributions from a SIMPLE IRA follow all the rules for distributions from a traditional IRA, with two exceptions:

  • Simple Pre-2 Year Distributions: The IRS imposes a 25% penalty on distributions taken from a SIMPLE IRA within two years of the date of the first contribution to the Simple account.
  • Required Beginning Date May Be Delayed if a person is still working and has compensation once they have attained the age of 70½, required minimum distributions may be delayed until the year following the year the participant retires.

Call us today at 1-800-50-PLACE (1-800-507-5223, 919-719-7200) to get started!


IRS Circular 230 Notice: These statements are provided for information purposes only, are not intended to constitute tax advice which may be relied upon to avoid penalties under any federal, state, local or other tax statutes or regulations, and do not resolve any tax issues in your favor.

(Please be sure to check with your tax and/or legal advisor prior to making any contributions, withdrawals or other changes to your retirement account.  Place Trade Financial, Inc. does not offer tax or legal advice. Information provided by Place Trade is for educational purposes and should not be considered as tax or legal advice under any circumstances.)     




Learn more about retirement planning by visiting some of the links below:

Roth IRA



Traditional IRA

Qualified Plans

Rollover IRAs

Find out how Place Trade can help you get the most out of your college planning by visiting some of the links below:

Coverdell ESA

529 College Savings Plans

UGMA/UTMA Accounts