Any employee who earned at least $5,000 in the previous two years and expects to earn $5,000 this year is eligible to contribute to a SIMPLE IRA account. Employers can establish less-restrictive rules if they choose, but they cannot add further restrictions.
Employees can generally elect to contribute up to $16,000 in 2024, or $16,500 in 2025. If the employee is 50 or older, they can contribute an additional $3,500 in both years. There are a few exceptions, though:
- If the business has 25 or fewer workers, employees can contribute up to $17,600 in both years. Workers 50 and older can make catch-up contributions of up to $3,850, for a maximum contribution of $21,450.
- Employers with 26 to 100 workers can also allow these higher limits -- but they must offer higher contribution rates of either a flat 3% of employee salaries or a 4% match.
- Starting in 2025, employees between the ages of 60 to 63 can make higher catch-up contributions of up tp $5,250.
The employer withholds the amount the employee elects from each paycheck and deposits it in their designated SIMPLE IRA account.
In addition to the employee contribution, the employer contributes, too. The employer contribution can either be a dollar-for-dollar matching contribution of 3% of the employee's compensation or a nonelective contribution equal to 2% of each employee's compensation. The higher matching contribution percentage could result in the employer contributing more if its employees are motivated to save for retirement.
