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SIMPLE IRA (Individual)

A SIMPLE IRA is a salary reduction retirement plan offered by employers that allows you to contribute pretax earnings to a tax-favored account.

Commonly referred to as SIMPLE retirement plan, Savings Incentive Match Plans for Employees of Small Employers, SIMPLE individual retirement plan and salary reduction retirement plan.

Do I Qualify for a SIMPLE IRA (Individual)?

With a SIMPLE retirement plan, employers allow employees to set aside pretax dollars in retirement accounts that can grow without taxation until withdrawals are made, after the owner reaches a certain age.

2022 SIMPLE IRA (Individual) Details

With a SIMPLE (short for “Savings Incentive Match Plans for Employees of Small Employers”) IRA plan, employers allow employees to set aside pretax dollars in retirement accounts that can grow tax-free until withdrawals are made, after the owner reaches a certain age.

SIMPLE IRA Contributions

The amount you can contribute to a SIMPLE IRA from your salary is subject to an inflation-adjusted annual limit. (Employees older than 50 can make additional catch-up contributions.)

Employers must make a contribution, but they have options in how to calculate the amount they contribute. Your employer can either:

• Match your contribution in an amount between 1% and 3% of your compensation, or
• Make a nonelective contribution of 2% of salary to all employees, regardless of whether the employees contribute

All contributions made to these accounts, including employer contributions, are 100% vested from the start.

Required Employer Communications

Every year, your employer must provide you with an update on the status of the plan. That notice must be delivered to you before the start of the annual election period (typically the 60 days before January 1, with some exceptions), and it must include:

• A description of your opportunity to make or modify salary reduction changes under the plan.
• Notice of the employer’s plan to make either matching or nonelective contributions.
• A summary description of the plan provided by the financial institution.
• Written notice that your balance can be transferred without cost or penalty if you use a designated financial institution.

SIMPLE IRA (Individual)

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• Participants may elect to contribute
• Participant is always 100% vested in (i.e., has ownership of) all SIMPLE IRA money


• Participant loans not allowed
• Lower contribution limits than some other retirement plans

Assumptions When Taking the SIMPLE IRA (Individual)

• All participants wish to make the maximum contribution.

Conflicting Strategies

• SIMPLE 401(k) (Individual)
• Roth 401(k)
• Solo 401(k) (Individual)
• Traditional 401(k) (Individual)

Requirements to Claim the SIMPLE IRA (Individual)

• Your employer must have a SIMPLE IRA plan in place.
• Your employer must file a form to set up your account, which will either identify a designated financial institution where your contributions and any matching funds will be deposited, or allow you to identify the institution where you want your funds deposited.

Business Entities That Can Claim the SIMPLE IRA (Individual)

• Individual

The material discussed on this page is meant for general illustration and/or informational purposes only and is not to be construed as investment, tax, or legal advice. You must exercise your own independent professional judgment, recognizing that advice should not be based on unreasonable factual or legal assumptions or unreasonably rely upon representations of the client or others. Further, any advice you provide in connection with tax return preparation must comply in full with the requirements of IRS Circular 230.

Prosperity Tax Advisors
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