SIMPLE IRA Plan: 2026 Limits, Contributions, and Deadlines

The rules for a SIMPLE IRA plan set a hard employer-size ceiling, dictate who must be allowed in, prescribe how and when you fund it, and impose deposit and withdrawal deadlines that carry real penalties. In short: your business must have had no more than 100 employees earning $5,000 or more last year, you cannot run another qualified retirement plan alongside it, you must contribute every year using one of two formulas, and employees can defer up to $17,000 of pay in 2026 (with higher amounts for older workers and for very small employers).

Which Employers Can Offer a SIMPLE IRA

The size test is simple. Your business must have had no more than 100 employees who each earned at least $5,000 during the previous calendar year.¹ Count everyone who met that threshold at any point in the year, including people who left before year-end and people who hadn’t yet met your own plan’s eligibility conditions.²

Grow past that limit and you keep the plan for a two-calendar-year grace period after the last year you satisfied the test.² If the jump comes from an acquisition, the IRS applies special rules and recommends bringing in a tax advisor.

You also cannot maintain any other qualified retirement plan while running a SIMPLE IRA. No 401(k), 403(b), or defined-benefit pension in parallel.¹ A narrow exception covers businesses that went through an acquisition in the current year or the two prior years, but only if the SIMPLE IRA’s participants are limited to the original employees.²

Which Employees Must Be Allowed In

Any employee who earned at least $5,000 in any two preceding calendar years and is reasonably expected to earn at least $5,000 in the current year has to be eligible.¹ You can loosen that (say, requiring only $3,000 in prior compensation), but you cannot tighten it. Employees under a collective bargaining agreement and nonresident aliens with no U.S.-source income may be excluded.

Setup Deadlines and Paperwork

First-time sponsors can make the plan effective on any date from January 1 through October 1.² The October cutoff exists so employees have time to make salary reduction elections for the rest of the year. New businesses that come into existence after October 1 can set up the plan as soon as administratively feasible. If you previously maintained a SIMPLE IRA and are starting a new one, the effective date must be January 1. In all cases, the effective date cannot precede the day you actually adopt the plan documents.

The IRS offers two model plan documents, and the choice between them turns on one question: who picks the financial institution?

Form 5304-SIMPLE lets each employee choose their own financial institution for their account.³
Form 5305-SIMPLE requires all accounts to be held at a single institution the employer designates.³

Both forms ask for the business’s legal name, EIN, the contribution method you’re using, and the plan’s effective date. Neither gets filed with the IRS. Keep the executed form in your permanent records as proof of the plan’s terms during any future audit.

You also need a summary description for employees. The financial institution holding the accounts must provide this document, and it must describe eligibility, benefits, how and when employees make elections, and withdrawal and rollover rules.⁴ For plans using Form 5304-SIMPLE or 5305-SIMPLE, a completed copy of the form plus instructions satisfies this requirement.

The Annual Election Window

Every year, eligible employees need at least 60 days to decide whether to contribute and how much. That window has to run from November 2 through December 31 at minimum.⁵ Before the window opens, each eligible employee needs the summary description and a salary reduction agreement.

A brand-new plan with a mid-year effective date still owes the 60-day notice before the election period preceding its start. Employees can change deferrals during each annual election period and can stop contributing at any time, though most plans only permit them to resume during the next window.

2026 Contribution Limits

An employee can defer up to $17,000 of salary in 2026.⁶ Two catch-up tiers sit on top:

Age 50 and older: an extra $4,000, for a total of $21,000.⁶
Ages 60 through 63: under SECURE 2.0, the catch-up rises to $5,250, for a total of $22,250.⁷

Enhanced Limits for Small Employers

SECURE 2.0 created a higher deferral ceiling for the smallest businesses. Employers with 25 or fewer employees can allow salary deferrals up to $18,100 in 2026.⁵

Employers with 26 to 100 employees can use that $18,100 limit too, but only if they either raise their match to 4% of compensation or, using the nonelective method, contribute 3% instead of 2%.⁵

Employer Contribution: Match or Nonelective

You must fund the plan each year using one of two methods, chosen for the full calendar year.

Dollar-for-Dollar Match up to 3%

Match each participating employee’s deferral dollar-for-dollar, up to 3% of their compensation. An employee earning $60,000 who defers $1,800 gets a $1,800 match. Defer only $500 and the match is $500. Employees who don’t defer get no match.

You can reduce the match to as low as 1% of compensation, but not for more than two years out of any five-year period, and you must notify employees of the reduced percentage before the 60-day election window opens.² Any year you use the nonelective method, and any year before you first offered a SIMPLE IRA, counts as a 3% year for that five-year test.

2% Nonelective Contribution

Contribute 2% of compensation for every eligible employee, whether they defer or not. Compensation is capped at $360,000 for this calculation in 2026.⁸ An employee earning $80,000 gets a $1,600 nonelective contribution regardless of what they put in themselves.

Whichever method you pick, tell employees before the annual election period so they can make an informed deferral choice.

The Roth Option

Since 2023, SECURE 2.0 has let employers offer employees the choice to designate their salary reduction contributions as Roth rather than traditional.⁹ Offering Roth is voluntary.

If you add it, employee Roth contributions stay subject to federal income tax withholding, Social Security, and Medicare taxes in the year they’re made.⁹ Employees must affirmatively elect Roth treatment; you cannot default them into it. Matching or nonelective contributions can also go into a Roth account, but they aren’t subject to withholding or payroll taxes at the time of contribution; they’re reported on Form 1099-R for the year they’re allocated.

Vesting and Tax Treatment

All contributions are 100% vested immediately.⁵ There is no schedule that ties employer money to an employee’s continued service. Traditional salary reductions are excluded from the employee’s W-2 wages, deferring their income tax until withdrawal. Every dollar the employer contributes, matching or nonelective, is deductible as a business expense.²

Deposit Deadlines

Late deposits are the most common compliance failure with SIMPLE IRAs. Two agencies set deadlines, and the stricter one controls.

The IRS rule: employee salary reductions must reach the account no later than 30 days after the end of the month in which they were withheld from pay.⁵ The Department of Labor rule, for plans covering anyone beyond the owner and spouse, is tighter: contributions must move as soon as they can reasonably be separated from general business assets, with a 7-business-day safe harbor.¹⁰ In practice, deposit within a week of each payroll.

Employer matching or nonelective contributions have more room. They’re due by your business’s tax return filing deadline, including extensions.⁵

Fixing a Late Deposit

Miss a deadline and you owe the earnings those funds would have generated. The IRS accepts a reasonable rate of interest when actual returns aren’t determinable, and the DOL provides an online calculator.¹⁰ Minor, occasional errors where reasonable procedures already existed can be handled through the IRS Self-Correction Program without filing anything. Larger failures go through the Voluntary Correction Program using Form 14568. Late employee deferrals should also be corrected under the DOL’s Voluntary Fiduciary Correction Program.

Withdrawal Rules and the Two-Year Clock

The withdrawal rule that trips up new participants is the two-year clock. It starts the day the employee first receives a contribution. Withdrawals during those first two years carry a 25% early distribution penalty, two and a half times the 10% penalty that applies to most other retirement accounts.¹¹ Flag this in your employee communications.

Rollovers face the same limit. During the two-year window, funds cannot move to a traditional IRA or 401(k) without triggering tax and the 25% penalty. Transfers to another SIMPLE IRA are allowed. After two years, standard IRA rollover rules apply, and money can move freely to traditional IRAs, 401(k)s, and other qualified accounts. Withdrawals before age 59½ still face the standard 10% penalty after the two-year mark, unless a statutory exception applies.¹¹

Fiduciary Duty

Sponsoring a SIMPLE IRA makes you a fiduciary. You have a legal obligation to act in your employees’ interests when managing the plan: act prudently, keep expenses reasonable, and follow the plan document.¹² Fiduciaries who breach these duties can be held personally liable to restore plan losses, and courts can remove them. Treat plan assets as belonging to your employees, because legally they do.

Ending or Replacing the Plan

SIMPLE IRA plans normally must run the full calendar year. You cannot terminate or amend mid-year outside of specific exceptions.² To end the plan for the following year, tell employees within a reasonable time before November 2 that it will be discontinued as of January 1, and notify your financial institution and payroll provider. No IRS filing is required, but keep records of what you did.

Mid-Year Switch to a 401(k)

SECURE 2.0 opened one exception to the full-year rule. For plan years beginning after December 31, 2023, an employer can terminate a SIMPLE IRA mid-year if it’s replaced the next day by a safe harbor 401(k), a SIMPLE 401(k), or a qualified automatic contribution arrangement safe harbor plan. The switch requires written action setting the termination date, at least 30 days’ advance notice to employees, and a separate eligibility notice for the replacement plan. Employees who roll their SIMPLE IRA balances into the new 401(k) get the 25% two-year penalty waived on those rollovers.

1
Office of the Law Revision Counsel. 26 USC 408 – Individual Retirement Accounts
2
Internal Revenue Service. Retirement Plans FAQs Regarding SIMPLE IRA Plans
3
Internal Revenue Service. Form 5304-SIMPLE – Savings Incentive Match Plan for Employees of Small Employers
4
Internal Revenue Service. SIMPLE IRA Plan Guidance – Notice 98-4
5
Internal Revenue Service. SIMPLE IRA Plan
6
Internal Revenue Service. Retirement Topics – SIMPLE IRA Contribution Limits
7
Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500
8
Internal Revenue Service. Notice 2025-67 – 2026 Amounts Relating to Retirement Plans and IRAs
9
Internal Revenue Service. SECURE 2.0 Act Changes Affect How Businesses Complete Forms W-2
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
12
U.S. Department of Labor. Fiduciary Responsibilities