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Everything You Need to Know About SIMPLE IRAs

Everything You Need to Know About SIMPLE IRAs

January 25, 2022

If you’ve ever been employed by a company offering retirement plans, you’ve likely heard of a 401(k).

But 401(k)s are not the only type of employer-sponsored retirement plans. One type of plan that you might not be so familiar with is a Savings Incentive Match Plan for Employees, also known as a SIMPLE IRA. Let’s start with the basics…


What is a SIMPLE IRA?

A SIMPLE IRA is an employer-sponsored retirement plan that is typically offered within small businesses that have 100 or fewer employees. And like other employer-sponsored retirement plans, with a SIMPLE IRA the employer matching incentive is built into the plan.


How is a SIMPLE IRA similar to a 401(k)?

Some aspects of SIMPLE IRA plans are very similar to 401(k) plans. Contributions to the plan are made pre-tax, and the money in the plan accumulates tax-deferred until it is withdrawn at retirement. And like a 401(k), if money is withdrawn from a SIMPLE IRA before age 591/2, there is a 10% penalty, 25% if you withdraw it within two years of enrolling in the plan, and you will have to pay income tax on it.


How does a SIMPLE IRA differ from a 401(k)?

SIMPLE IRA plans are different from 401(k) plans in a few ways.

  • Generally, larger companies with over 100 employees will offer 401(k) plans or other retirement plans, while smaller businesses with less than 100 employees will typically offer SIMPLE IRAs.
  • An employer offering a 401(k) plan can choose whether or not to match employee contributions. Additionally, SIMPLE IRAs generally don't impose a filing requirement on the employer, and operating costs are lower than those of 401(k) and other traditional retirement plans.
  • With most 401(k) plans, you are required to work for the employer for a certain number of years to be vested, meaning it could be anywhere from 3 to 5 years before you could take that employer’s matching contribution with you should you choose to leave. With the SIMPLE IRA, you are immediately vested.
  • An employer offering a 401(k) plan can choose whether or not to match employee contributions. Employers offering SIMPLE IRAs are generally required to match employee contributions, which can range from 1% to 3%.
  • With most 401(k) plans, you can only choose from the investment options provided by the employer. SIMPLE IRA plans allow you to choose how your money gets invested.
  • Many 401(k) plans allow the participant to borrow against their money if they need to. SIMPLE IRAs, however, do not allow you to take a loan from your plan.


There are many retirement account options out there, and there are better options for some people, while other options are better for others. Our financial professionals have years of experience helping people choose the appropriate option for their situation.

Still have questions about SIMPLE IRAs? We’re happy to help you decide whether a SIMPLE IRA is the appropriate plan for you. CONTACT US today to schedule a review.