SECURE Act 2.0 SIMPLE IRA Changes and Contribution Limits

The SECURE Act 2.0 changes to SIMPLE IRAs raised employee deferral limits, created a higher-limit “applicable” plan tier for smaller employers, added Roth contribution options, expanded employer contribution choices, and allowed mid-year termination when moving to a 401(k). For 2026, the standard employee deferral limit is $17,000, and most of these provisions are already in effect even though employers have until December 31, 2027, to formally amend their plan documents.¹

Higher Employee Deferral Limits in 2026

The baseline employee deferral limit for a SIMPLE IRA in 2026 is $17,000. The standard catch-up contribution for workers age 50 and older is $4,000.² Those numbers apply to most SIMPLE plans.

SECURE 2.0 also created a second tier called an “applicable” SIMPLE plan, which carries higher deferral limits in exchange for meeting size or contribution requirements. An applicable SIMPLE plan is one sponsored by an employer with no more than 25 employees who earned at least $5,000 in the prior year. For these smaller employers, the 10% bump in deferral and catch-up limits kicks in automatically. In 2026, that translates to a deferral ceiling of $18,100 and a catch-up limit of $3,850 for workers 50 and older.³

Employers with 26 to 100 employees can elect applicable-plan status too, but only if they agree to make higher employer contributions. An employee under 50 at a qualifying employer could defer up to $18,100 in 2026 instead of the $17,000 cap at a standard plan.

One quirk: the applicable-plan catch-up of $3,850 is actually lower than the regular catch-up of $4,000. Regular inflation indexing has outpaced the fixed 10% bump SECURE 2.0 applied to the original $3,500 base. The trade-off is that applicable plans still offer greater total savings capacity because the deferral limit itself is higher.

The Age 60-63 Super Catch-Up

Beginning in 2025, workers aged 60 through 63 qualify for an enhanced catch-up contribution that exceeds the standard age-50 amount. For SIMPLE plans, this super catch-up is $5,250 in 2026.³ The formula is the greater of $5,000 or 150% of the regular age-50 catch-up, indexed for inflation.²

A 62-year-old participating in a standard SIMPLE plan in 2026 could defer up to $22,250. At an applicable SIMPLE plan, the same worker could contribute $23,350. Once the participant turns 64, they revert to the regular age-50 catch-up amount.

2026 Maximum Employee Contributions by Plan Type

The interaction between standard plans, applicable plans, and catch-up tiers makes the arithmetic more complex than it used to be. The maximum employee contributions for 2026 break down as follows:

Standard SIMPLE plan, under age 50: $17,000
Standard SIMPLE plan, age 50-59 or 64+: $21,000 ($17,000 + $4,000 catch-up)
Standard SIMPLE plan, age 60-63: $22,250 ($17,000 + $5,250 super catch-up)
Applicable SIMPLE plan, under age 50: $18,100
Applicable SIMPLE plan, age 50-59 or 64+: $21,950 ($18,100 + $3,850 catch-up)
Applicable SIMPLE plan, age 60-63: $23,350 ($18,100 + $5,250 super catch-up)

New Employer Contribution Options

Before SECURE 2.0, every SIMPLE IRA employer picked one of two contribution methods each year: a dollar-for-dollar match on employee deferrals up to 3% of compensation, or a flat 2% nonelective contribution for every eligible employee whether or not they deferred anything. Both remain fully vested immediately.⁴

Starting in 2024, two enhanced alternatives became available. Employers can increase the match to 4% of compensation or raise the nonelective contribution to 3%. These enhanced options are voluntary for employers with 25 or fewer employees. For employers with 26 to 100 employees, they are mandatory if the employer wants to offer the higher employee deferral limits that come with applicable-plan status.

Additional Discretionary Contribution

SECURE 2.0 also created an entirely new contribution type: a nonelective contribution employers can make on top of whatever matching or nonelective formula they already use. The cap is the lesser of 10% of the employee’s compensation or $5,000, adjusted annually for inflation, and it must be offered uniformly to all eligible employees. Under the old rules, the IRS explicitly prohibited any contributions beyond the standard match or nonelective amount.⁴ The compensation taken into account for employer nonelective contributions is capped at $360,000 for 2026.²

Roth Contributions

For tax years beginning after December 31, 2022, SIMPLE IRA plans can allow employees to designate their salary deferrals as Roth contributions.⁵ Roth contributions use after-tax dollars. The money is taxed in the year it goes in, but qualified distributions in retirement come out entirely tax-free, including all investment growth.

This is not automatic. An employer that wants to offer Roth deferrals has to amend the plan and update employee notifications. Employers that skip this step cannot offer the Roth option even though the law permits it.

Roth Employer Contributions

SECURE 2.0 also allows employees to elect Roth treatment for employer matching and nonelective contributions, effective for contributions made after December 29, 2022. When an employee makes this election, the employer contribution is included in the employee’s gross income for that year. That upfront tax hit means the money and all future growth can be withdrawn tax-free in retirement.

Payroll reporting works differently for these Roth employer contributions. Employee Roth salary deferrals go on Form W-2 in box 12 using code S, the same box used for traditional SIMPLE IRA deferrals. Employer Roth matching and nonelective contributions are not reported on the W-2 at all. They go on Form 1099-R for the year the contribution is allocated to the employee’s account, and they are not subject to federal income tax withholding, Social Security, or Medicare tax withholding.⁵

Mid-Year Termination When Moving to a 401(k)

The old rules required employers to keep a SIMPLE IRA running for the full calendar year once it started. Termination could only happen at year-end, with notice to employees by November 2 of the preceding year.⁶ A growing business might have to wait more than a year before switching to a 401(k).

For plan years beginning after December 31, 2023, employers can terminate a SIMPLE IRA mid-year, but only if they immediately replace it with a safe harbor 401(k) or a 403(b) plan. The replacement plan must take effect the day after the SIMPLE IRA ends, and employees must receive written notice at least 30 days before the termination date.⁷

Waiver of the 25% Early Distribution Penalty

Withdrawals from a SIMPLE IRA within the first two years of participation normally carry a 25% early distribution penalty rather than the standard 10%.⁸ That penalty would have blocked employees from rolling their SIMPLE IRA balances into the replacement 401(k) or 403(b) without a steep tax hit. SECURE 2.0 waives the increased penalty when the rollover goes directly into the replacement plan as part of a mid-year termination. Rolled-over funds then become subject to the distribution restrictions of the new plan.⁷

Without the waiver, an employee with less than two years of participation would face a choice between leaving money stranded in a SIMPLE IRA or paying a 25% penalty to move it. The waiver eliminates that problem and makes mid-year transitions practical.

Expanded Tax Credits for Small Employers

SECURE 2.0 expanded the tax credits small employers can claim for sponsoring retirement plans, and SIMPLE IRA sponsors can claim both of the main credits.

The first is the startup costs credit, available to employers with 50 or fewer employees who earned at least $5,000 in the prior year. It covers 100% of eligible startup costs, up to the greater of $500 or the lesser of $250 multiplied by the number of non-highly compensated eligible employees or $5,000.⁹

The second is a credit for employer contributions, available for the first five years of the plan. For employers with 1 to 50 employees, the credit covers a percentage of actual employer contributions, up to $1,000 per participating employee per year. The percentage phases down over time:

Years one and two: 100% of the contribution, up to $1,000 per employee
Year three: 75% of the contribution, up to $1,000
Year four: 50% of the contribution, up to $1,000
Year five: 25% of the contribution, up to $1,000

Employers with 51 to 100 employees can still claim the contribution credit, but the percentage is reduced by 2% for each employee above 50.⁹ The credit does not apply to contributions made on behalf of employees earning more than $110,000 for 2026.¹⁰

When You Have to Amend the Plan Document

You do not need finalized paperwork to start using any of these provisions. The IRS requires only that the plan be operated as if the amendments are in effect. The formal deadline to amend SIMPLE IRA plan documents to reflect SECURE 2.0 has been extended to December 31, 2027.¹

In practice, an employer can offer Roth deferrals, apply the higher contribution limits, or use the enhanced employer contribution options now, as long as the plan is being run consistently with those provisions. The written plan document just needs to catch up by the end of 2027.

1
Internal Revenue Service. Extension of SECURE 2.0 Act Amendment Deadline for IRAs
2
Internal Revenue Service. Retirement Topics – SIMPLE IRA Contribution Limits
3
Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500
4
Internal Revenue Service. SIMPLE IRA Plan – Section: What Are the Contribution Rules?
5
Internal Revenue Service. SECURE 2.0 Act Changes Affect How Businesses Complete Forms W-2
6
Internal Revenue Service. Retirement Plans FAQs Regarding SIMPLE IRA Plans – Section: Terminating a SIMPLE IRA Plan
7
Internal Revenue Service. Miscellaneous Changes Under the SECURE 2.0 Act of 2022
8
Internal Revenue Service. SIMPLE IRA Withdrawal and Transfer Rules
9
Internal Revenue Service. Retirement Plans Startup Costs Tax Credit
10
Internal Revenue Service. 2026 Amounts Relating to Retirement Plans and IRAs, as Adjusted