Contribution Limits for SIMPLE IRAs 2021

Learn about employer and employee SIMPLE IRA contributions

Contribution limits for SIMPLE IRAs are broken up into two pieces: contribution limits from the employee and contribution limits from the employer. If you’d like to skip directly to these topics or want to go to pros and cons, then you can do so by clicking one of the following:

Or, if you’re new to SIMPLE IRAs or are looking for a refresher, then we’ll overview this next.


A SIMPLE (Savings Incentive Match Plan for Employees) IRA plan is a retirement plan for small business that allows contributions from both the employer and employee to be made to a SIMPLE IRA account that is opened per employee as part of the plan.

An employer (this includes self-employed individuals) can open a SIMPLE IRA if there are no more than 100 employees with a compensation of $5,000 or more during the previous calendar year.

To start a SIMPLE IRA, either form 5305-SIMPLE if the contributions are to be made to a specific financial institution or 5304-SIMPLE if employees can choose the financial institution for the contributions must be completed. Alternatively, an IRS-approved institution can be used if a prototype SIMPLE IRA plan is chosen. From there, certain info must be provided to and a SIMPLE IRA account created per eligible employees.

The rules for contributions made by the employee and the employer do differ. Both of these will be discussed next.

Employee Contributions

Any employee that’s received at least $5,000 in compensation during any prior two calendar years (doesn’t need to be consecutive) and whose expected compensation is at least $5,000 during the current calendar year is eligible to participate in a SIMPLE IRA plan.

For the employee, the total amount that can be contributed is limited to $13,500 for those under 50. Those 50 or over may be able to contribute an extra “catch-up” contribution up to $3,000 for a maximum possible contribution of $16,500 if permitted by the SIMPLE IRA plan. These contributions are pulled from the employee’s salary, which is known as salary reduction contributions, pretax.

If an employee has another employer-sponsored retirement plan that allows elective pretax contributions from his/her salary (e.g., 401(k), 403(b), SIMPLE plan, or SARSEP), then the total combined amount that can be contributed for all plans cannot exceed $19,500 if under 50 and $26,000 if 50 or over.

Employer Contributions

An employer can choose to make contributions in one of two ways: 2% nonelective contribution for eligible employees or matching contribution up to 3% of the employee's contribution.

2% Nonelective Contribution
The employer will calculate 2% of the employee’s compensation and make a contribution to the employee's SIMPLE IRA account. To be clear, the employer pays for this contribution; not the employee. There are a couple of other items to point out as well:

  • Only the first $290,000 of the employee’s compensation can be taken into account for this contribution.
  • The employer is required to make the 2% contribution independent of whether or not the employee decides to make salary reduction contributions.

Up to 3% Matching Contribution
For this contribution type, the employer must match the employee's salary reduction contributions dollar-for-dollar up to 3% of the employee’s compensation.

Some additional notes on this:

  • The employer may choose to lower the match rate down to as little as 1% but for no more than 2 out of 5 years. The other 3 years must be 3%.
  • The $290,000 compensation limit is not applicable here as it is with the 2% nonelective contribution. That said, there is still an indirect limit given that the employees are capped on the amount they can contribute.

SIMPLE IRA Pros and Cons

Some pros include:

  • Simple to operate.
  • Employees have the opportunity to contribute under the plan.
  • Inexpensive to operate.

Some cons include:

  • Contribution limits are lower than some other retirement plans.
  • Employer contribution rates are inflexible.
  • Not as flexible as a SEP in some ways; especially for self-employed individuals. If you’d like to take a look at some of the rules around SEPs, then see Contribution Limits for SEP IRAs.


  2. IRS - SIMPLE IRA Plan
  3. IRS - SIMPLE IRA Contribution Limits