Can I Contribute to a SIMPLE IRA and a 401k?

Many individuals participate in employer-sponsored retirement plans, such as a Savings Incentive Match Plan for Employees (SIMPLE) IRA and a 401(k). Understanding the rules for contributing to multiple plans is important for optimizing contributions and ensuring compliance with tax regulations. This article clarifies the guidelines for contributing to both a SIMPLE IRA and a 401(k), focusing on applicable limits and managing contributions.

Individual Contribution Limits

Individuals can contribute to both a SIMPLE IRA and a 401(k) if they meet each plan’s eligibility requirements. Each plan has specific limits on employee elective deferrals for a given tax year. These limits are set by the Internal Revenue Service (IRS) and are subject to annual adjustments.

For 2025, the maximum elective deferral into a 401(k) plan is $23,500. Participants aged 50 and older can make additional “catch-up” contributions. The standard catch-up contribution for 401(k) plans in 2025 is $7,500, allowing those aged 50 and over to contribute up to $31,000 in total.

A SIMPLE IRA also allows employee elective deferrals with different limits. For 2025, the employee contribution limit for a SIMPLE IRA is $16,500. Catch-up contributions are available for participants aged 50 and older. The catch-up contribution for SIMPLE IRAs in 2025 is $3,500, meaning eligible individuals can contribute a total of $20,000. These individual limits represent the maximum an employee can contribute to each specific plan if they were only participating in that one plan.

Combined Contribution Limits

A single, overarching limit applies to the total amount of employee elective deferrals across various retirement plans. This combined annual limit, known as the 402(g) limit, encompasses contributions to 401(k) plans, 403(b) plans, Savings Incentive Match Plans for Employees (SIMPLE IRAs), and Salary Reduction Simplified Employee Pension Plans (SARSEPs). For 2025, the 402(g) limit for elective deferrals is $23,500. An individual’s combined contributions to all these plans cannot exceed this amount.

This combined limit is important for individuals who might work multiple jobs or change employers within the same year. For example, if someone works for an employer offering a 401(k) and then takes on a new job that provides a SIMPLE IRA, they are responsible for ensuring their total contributions across all plans do not exceed the $23,500 limit.

Catch-up contributions for those aged 50 and over are generally separate from the 402(g) limit, allowing eligible individuals to contribute above the standard elective deferral limit. Employer contributions, such as matching contributions or non-elective contributions, do not count towards this employee elective deferral limit. Employer contributions are subject to their own separate limits.

Addressing Excess Contributions

Contributing more than the annual combined elective deferral limit across retirement plans can lead to tax implications and requires corrective action. When contributions exceed the 402(g) limit, the excess amount is termed an “excess deferral” and must be removed from the plan. Failure to correct these excess contributions promptly can result in double taxation and penalties.

To rectify an excess contribution, individuals should contact their plan administrator(s) as soon as the over-contribution is identified. The excess amount, along with any earnings or losses attributable to it, must be distributed from the plan. If the excess deferral and its earnings are distributed by April 15 of the year following the over-contribution, the excess deferral is included in the individual’s taxable income for the year it was contributed, and the earnings are taxed in the year of distribution. This April 15 deadline is not extended by filing an extension for one’s tax return.

If the excess contribution is not distributed by the tax filing deadline, it can be taxed twice: once in the year it was contributed and again when it is eventually distributed from the plan. Additionally, a 6% excise tax may be imposed each year the excess amount remains in the account. Individuals should track their contributions across all plans to avoid exceeding the combined limits and ensure compliance with IRS regulations.