Form 5305-SIMPLE is the IRS model plan document a small employer uses to establish a SIMPLE IRA under Internal Revenue Code Section 408(p) when all plan contributions will be deposited at a single financial institution the employer chooses. You complete it, sign it along with the financial institution, keep it in your records as your official plan document, and never file it with the IRS.1Internal Revenue Service. SIMPLE IRA Plan
When to Use 5305-SIMPLE Instead of 5304-SIMPLE
The IRS publishes two model SIMPLE IRA documents, and the choice between them comes down to who picks the financial institution. Form 5305-SIMPLE routes every contribution to one institution you designate. Form 5304-SIMPLE lets each employee open a SIMPLE IRA wherever they prefer.2Internal Revenue Service. SIMPLE IRA Plan Fix-it Guide — SIMPLE IRA Plan Overview
Consolidating at one institution is usually easier to administer. The tradeoff written into the form: you cannot charge employees any fee or penalty if they later transfer their SIMPLE IRA balance to a different institution.3Internal Revenue Service. Form 5305-SIMPLE – Savings Incentive Match Plan for Employees of Small Employers
Who Can Use Form 5305-SIMPLE
Only employers who had 100 or fewer employees earning at least $5,000 in compensation during the preceding calendar year can establish a SIMPLE IRA plan. Every employee who crossed the $5,000 threshold counts toward the 100-person limit, whether or not they’d participate.4Internal Revenue Service. SIMPLE IRA Plan Fix-It Guide – You Have More Than 100 Employees Who Earned $5,000 or More in Compensation for the Prior Year
You also can’t maintain or contribute to another qualified retirement plan, such as a 401(k) or defined benefit plan, for the same year you maintain the SIMPLE IRA.1Internal Revenue Service. SIMPLE IRA Plan
On the employee side, you must let a worker participate if they earned at least $5,000 in compensation from you during any two preceding calendar years (not necessarily consecutive) and are reasonably expected to earn at least $5,000 in the current year.5Office of the Law Revision Counsel. 26 USC 408 – Individual Retirement Accounts You can loosen these rules in the form (lower the dollar threshold, drop the prior-year requirement), but you cannot tighten them. Full-time-only, age, or job-title restrictions aren’t allowed.6Internal Revenue Service. Retirement Plans FAQs Regarding SIMPLE IRA Plans
The Contribution Commitment You’re Signing
Employer contributions are mandatory every year under a SIMPLE IRA plan. On the form, you pick one of two formulas:
- Matching contributions of each participating employee’s salary deferrals, dollar for dollar, up to 3% of that employee’s compensation. Only employees who defer receive a match. You can drop this rate as low as 1% in up to two calendar years within any five-year period.3Internal Revenue Service. Form 5305-SIMPLE – Savings Incentive Match Plan for Employees of Small Employers
- Nonelective contributions of 2% of each eligible employee’s compensation, whether or not they defer anything themselves. Compensation counted for this calculation is capped at the annual limit ($360,000 for 2026).1Internal Revenue Service. SIMPLE IRA Plan
You can switch formulas from year to year, but you have to tell employees before the annual election period if you’re changing.
Establishment Deadlines
A new SIMPLE IRA plan can take effect on any date from January 1 through October 1 of the year, giving a first-time sponsor room to start mid-year. Employers who come into existence after October 1 can set up the plan as soon as administratively feasible. If you previously maintained a SIMPLE IRA plan and are starting a new one, the effective date must be January 1.6Internal Revenue Service. Retirement Plans FAQs Regarding SIMPLE IRA Plans
Completing and Keeping the Form
The form itself is short. You enter your business name, address, and Employer Identification Number, check your contribution formula, write in the plan’s effective date, and identify the designated financial institution. You and the financial institution both sign. The signed form is your plan document. Keep it in your records permanently; nothing goes to the IRS.3Internal Revenue Service. Form 5305-SIMPLE – Savings Incentive Match Plan for Employees of Small Employers
The Annual Employee Notice
Before contributions begin each year, every eligible employee must get a notice covering their chance to start or change salary deferrals, the contribution formula you’ve chosen, and a summary description of the plan. The financial institution usually supplies the summary description.6Internal Revenue Service. Retirement Plans FAQs Regarding SIMPLE IRA Plans
The notice must go out before the 60-day election period, which generally runs November 2 through December 31 for the following calendar year. For a new plan starting mid-year, the election period is the 60 days ending on the plan’s effective date. The penalty for failing to provide required SIMPLE IRA notices is $50 per day until corrected.7Internal Revenue Service. IRM 20.1.8 Employee Plans and Exempt Organizations Miscellaneous Civil Penalties
Deposit Deadlines
Two separate deadlines govern deposits once the plan is running:
- Employee salary deferrals must reach the financial institution no later than 30 days after the end of the month in which you withheld them. Department of Labor rules also require depositing deferrals as soon as they can reasonably be separated from your general business assets, with a 7-day safe harbor for most SIMPLE IRA plans.3Internal Revenue Service. Form 5305-SIMPLE – Savings Incentive Match Plan for Employees of Small Employers8Internal Revenue Service. SIMPLE IRA Plan Fix-It Guide – You Didn’t Deposit Employee Elective Deferrals Timely
- Employer matching or nonelective contributions are due by your tax return filing deadline, including extensions, for the year that includes the last day of the calendar year for which contributions are made.1Internal Revenue Service. SIMPLE IRA Plan
2026 Contribution Limits
Employees contribute through pre-tax salary deferrals. For 2026, the base deferral limit is $17,000 for most SIMPLE IRA plans. Employers with 25 or fewer employees can offer a higher deferral limit of $18,100 under SECURE 2.0 Act changes; the elevated limit applies automatically based on employer size and carries slightly different catch-up figures.9Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500
Catch-up contributions for older workers:
- Ages 50–59 and 64+: an additional $4,000 in standard SIMPLE plans, or $3,850 in the higher-limit plans for employers with 25 or fewer employees.
- Ages 60–63: a “super” catch-up of $5,250, regardless of employer size.9Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500
A 62-year-old in a standard SIMPLE plan could therefore defer up to $22,250 in 2026, with employer matching or nonelective contributions on top.
Warn Employees About the Two-Year Rule
SIMPLE IRAs carry a two-year restriction that catches participants off guard. During the first two years after an employee first participates, the only permitted transfer is to another SIMPLE IRA. Moving money to a traditional IRA, a 401(k), or another employer plan inside that window triggers income tax on the transferred amount plus a 25% additional tax, well above the 10% early-withdrawal penalty that applies to most other retirement accounts.10Internal Revenue Service. SIMPLE IRA Withdrawal and Transfer Rules Flag this in your employee notice so anyone considering contributing knows the cost of pulling money out early.