What Is a SIMPLE IRA? | The Motley Fool

How SIMPLE IRA Plans Work in 2025

By Kailey Hagen – Updated Nov 20, 2025 at 10:53 AM

Key Points

SIMPLE IRAs allow employees and employers to contribute, with lower costs than 401(k) plans.
Employers must contribute either a fixed 2% to 4% of salaries or match employee contributions, up to 3% or 4% of the employee's income.
The Secure Act 2.0 increased contribution limits and options for employers with 26 to 100 employees.

A SIMPLE IRA is a retirement savings plan for employers with 100 or fewer employees. While SIMPLE IRAs are, as the name implies, pretty simple, the name is actually an acronym for Savings Incentive Match Plan for Employees. Offering one can be a cost-effective way for small business owners to give their employees a retirement savings plan without the expenses or potential limitations of a 401(k).

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A couple counts out the coins from their retirement jar. — Image source: Getty Images.

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Pros	Cons
Lower costs to establish and operate compared to a 401(k) plan.	Both the employee elective salary deferral and the maximum employer matching contribution percentage are lower than in a 401(k) plan.
SIMPLE IRA accounts usually let owners buy and sell any security or financial instrument they choose, with just a few limitations on risky stock options trades.	Inflexible contributions: Most employers must contribute a flat 2% up to a salary cap or provide a 3% match with no salary cap, though those with 26-100 employees can contribute a flat 3% or a 4% match.
Employer contributions vest immediately.	Extra penalty for rollovers and withdrawals within two years of establishing the account.

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Related retirement plans

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Traditional IRAs

Compare SIMPLE IRAs with traditional IRAs.

Roth IRAs

Compare Roth IRAs and SIMPLE IRAs.

401(k)s

Understand the basics of 401(k)s.

Retirement Plans

Learn all your retirement savings options.

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About the Author

Kailey Hagen, CFP, is a contributing Motley Fool retirement analyst covering Social Security, Medicare, and retirement planning. Before The Motley Fool, Kailey was a research analyst for Reviews.com focusing on credit and banking products. She is a Certified Financial Planner® and holds a bachelor’s degree in English from the University of Wisconsin-Madison.

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