SIMPLE IRA Limits, Catch-Up Tiers, and the Two-Year Rule

The SIMPLE IRA contribution limits for 2026 let employees defer up to $17,000 of pay, with catch-up contributions of $4,000 for those age 50 and older and $5,250 for participants ages 60 through 63. Employers add to that on top through either a dollar-for-dollar match up to 3% of pay or a flat 2% non-elective contribution, and businesses with 25 or fewer employees get access to a higher deferral ceiling of $18,100.¹

Employee Deferral Limit for 2026

The standard employee salary deferral limit is $17,000 in 2026, up from $16,500 in 2025 and $16,000 in 2024.² Employees fund the account through a salary reduction agreement, so contributions come out of gross pay before federal income tax is withheld. The dollar cap applies no matter what percentage of pay the employee elects to defer, and the same limit governs SIMPLE 401(k) plans.¹

Catch-Up Contributions by Age

Employees who turn 50 or older by December 31 of the tax year can contribute above the standard limit. For 2026, the regular catch-up is $4,000, up from $3,500 in 2024 and 2025.² Added to the base deferral, that raises the maximum employee contribution to $21,000.

Eligibility runs on the participant’s birth date compared to the calendar year, and the catch-up must be reflected in the salary reduction election. The financial institution holding the account reports catch-up amounts separately to the IRS.³

Ages 60 Through 63

SECURE 2.0 created a higher catch-up tier for participants who turn 60, 61, 62, or 63 during the tax year. For 2026, this enhanced amount is $5,250 in SIMPLE plans, which puts the total employee contribution at $22,250 for someone in that four-year window.⁴ Once a participant turns 64, the catch-up drops back to the standard $4,000.

What the Employer Must Contribute

A SIMPLE IRA cannot be an employee-only plan. The employer picks one of two formulas each year and applies it uniformly to every eligible employee:⁵

A dollar-for-dollar match on employee deferrals up to 3% of the employee’s compensation. Only employees who actually contribute get matched. The employer may reduce this match to as low as 1% for up to two years in any five-year period.
A 2% non-elective contribution for every eligible employee, whether or not the employee defers anything. Using this formula requires notifying participants during the annual 60-day election period.

Both employee and employer contributions are 100% vested immediately.⁵

Optional Additional Employer Contribution

SECURE 2.0 added a third layer that sits on top of the required contribution. Employers can make an additional non-elective contribution to each eligible employee in a uniform manner, capped at the lesser of 10% of compensation or $5,300 for 2026.¹ This piece is fully discretionary.

Higher Limits for Small Employers

Businesses with 25 or fewer employees automatically get access to a higher deferral ceiling. For 2026, that enhanced limit is $18,100 rather than the standard $17,000.¹ The enhanced amounts were set at 110% of the standard figures under SECURE 2.0, though the COLA math has caused some drift from a clean 110%.

Employers with 26 to 100 employees can also use the enhanced deferral limit, but only if they commit to either a 4% match or a 3% non-elective contribution, both of which exceed the standard employer requirements.⁵

One 2026 quirk to note: the enhanced catch-up limit for these small-employer plans is $3,850, which is actually lower than the standard $4,000 catch-up that applies to all SIMPLE plans.¹ The standard catch-up received a COLA increase that outpaced the 110% enhancement for this year. The enhanced deferral still helps, but the catch-up boost does not.

Compensation Cap for High Earners

Employer contributions are not calculated on unlimited pay. Federal rules cap the compensation counted toward retirement plan formulas at $360,000 for 2026, up from $350,000 in 2025 and $345,000 in 2024.¹ Earnings above that threshold are ignored when computing the 2% non-elective contribution and the additional discretionary contribution.⁶ An employee earning $400,000 in 2026 would receive a 2% non-elective contribution based on $360,000, capping the employer’s obligation at $7,200.

Roth Contributions Under a SIMPLE Plan

SECURE 2.0 lets SIMPLE plans offer a Roth option. Employee deferrals go in on an after-tax basis, and qualified withdrawals come out tax-free. The employer permits participating employees to designate a Roth IRA as the destination for their SIMPLE contributions, and the employee has to affirmatively elect it.⁷

The dollar limits stay the same; only the tax treatment changes. A SIMPLE IRA itself cannot be a Roth IRA, and SIMPLE plans do not use designated Roth accounts the way a 401(k) does.⁸ Employer matching or non-elective contributions designated as Roth are included in the employee’s gross income for the year they are made but are not subject to Social Security or Medicare withholding.⁷ Offering the Roth feature is optional for employers, and many smaller plan sponsors have not adopted it.

Deposit Deadlines

Employee salary deferrals must be deposited into the participant’s SIMPLE IRA no later than 30 days after the end of the month in which the amounts would otherwise have been paid.⁹ Most plans also fall under Department of Labor rules requiring deposits at the earliest date the employer can reasonably segregate the funds from general assets, with a seven-day safe harbor for smaller plans.¹⁰ Late deposits can trigger prohibited transaction penalties.

Employer matching and non-elective contributions get more room. They must be deposited by the due date, including extensions, for filing the employer’s federal income tax return for the year.⁵

The Two-Year Rule on Withdrawals and Rollovers

One boundary that catches SIMPLE IRA participants off guard: money withdrawn during the first two years of participation triggers a 25% early withdrawal penalty rather than the 10% penalty that applies to traditional IRAs.¹¹ The two-year clock starts on the date the employer first deposited contributions to the account.

The same 25% additional tax hits rollovers to anything other than another SIMPLE IRA during that two-year window. After the two years are up, funds can move tax-free to a traditional IRA, 401(k), 403(b), or governmental 457(b) plan; Roth IRA rollovers are also allowed after the two-year mark, but income tax applies to any pre-tax amounts converted.¹¹ Standard early-distribution exceptions for disability, certain medical expenses, and first-time home purchase (up to $10,000) can reduce or eliminate the 25% penalty when the participant qualifies. Once past age 59½, the additional tax no longer applies.

1
Internal Revenue Service. Notice 2025-67 – 2026 Amounts Relating to Retirement Plans and IRAs
2
Internal Revenue Service. COLA Increases for Dollar Limitations on Benefits and Contributions
3
Internal Revenue Service. Retirement Topics – Catch-Up Contributions
4
Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500
5
Internal Revenue Service. SIMPLE IRA Plan
6
eCFR. 26 CFR 1.401(a)(17)-1 – Limitation on Annual Compensation
7
Internal Revenue Service. SECURE 2.0 Act Impacts How Businesses Complete Forms W-2
8
Internal Revenue Service. Retirement Plans FAQs on Designated Roth Accounts
9
U.S. Department of Labor. SIMPLE IRA Plans for Small Businesses
10
Internal Revenue Service. SIMPLE IRA Plan Fix-It Guide – You Didn’t Deposit Employee Elective Deferrals Timely
11
Internal Revenue Service. SIMPLE IRA Withdrawal and Transfer Rules