Can I Max Out My SIMPLE IRA and Traditional IRA?

Many individuals with a SIMPLE IRA also want to save in a personal Traditional IRA, raising the question: can you contribute the maximum amount to both in the same tax year? Understanding the contribution limits and how these accounts interact is necessary to maximize your retirement savings strategy without incurring penalties.

Understanding SIMPLE IRA Contribution Limits

A SIMPLE (Savings Incentive Match Plan for Employees) IRA allows employees of small businesses to save for retirement through salary deferral. For 2025, the standard employee contribution limit is $16,500. This limit can increase to $17,600 for employees at companies with 25 or fewer employees, or at companies with 26 to 100 employees if the employer makes more generous contributions.

The tax code permits additional “catch-up” contributions for those age 50 or over. The amount of this catch-up varies based on age and the plan’s specific limits.

• The standard catch-up contribution is $3,500.
• For employees eligible for the higher contribution limit, the catch-up amount is $3,850.
• A special, larger catch-up of $5,250 is available for participants who are ages 60, 61, 62, or 63.

Employers must also contribute to a SIMPLE IRA. They must either make a matching contribution up to 3% of the employee’s compensation or a non-elective contribution of 2% of compensation for every eligible employee.

Understanding Traditional IRA Contribution Limits

A Traditional Individual Retirement Arrangement (IRA) is a personal savings plan available to anyone with taxable compensation. For the 2025 tax year, the maximum amount an individual can contribute is $7,000.

Similar to other retirement accounts, Traditional IRAs offer a catch-up provision. Savers who are age 50 or over can contribute an additional $1,000, for a total of $8,000 for the year.

This annual limit is per person, not per account. It applies to the combined total of all contributions made to both Traditional and Roth IRAs in a single year. An individual cannot contribute the full amount to a Traditional IRA and then contribute again to a Roth IRA in the same year.

The Aggregate Contribution Rule for Both Accounts

An overarching rule governs contributions to both a SIMPLE IRA and a Traditional IRA in the same year. Your salary reduction contributions to a SIMPLE IRA directly reduce your annual Traditional IRA contribution limit. Employer contributions to your SIMPLE IRA, whether matching or non-elective, do not count toward this personal limit.

To find your remaining Traditional IRA contribution room, subtract your SIMPLE IRA employee contributions from your total allowable IRA contribution for the year. This calculation ensures your total personal retirement contributions do not exceed a combined threshold.

Consider an employee under age 50 who contributes $10,000 to their SIMPLE IRA in 2025. The overall IRA limit for them is $7,000. Because the SIMPLE IRA contribution already exceeds the total IRA limit, their maximum allowable Traditional IRA contribution for 2025 is $0.

In another scenario, if that same employee contributed only $4,000 to their SIMPLE IRA, there would be remaining capacity. By taking the $7,000 overall IRA limit and subtracting the $4,000 SIMPLE IRA contribution, the result is $3,000. This individual would be allowed to contribute up to $3,000 to a Traditional IRA for the year.

Impact on Traditional IRA Deductibility

Even if you can contribute to a Traditional IRA, your ability to deduct it is a separate issue. The IRS considers anyone participating in a SIMPLE IRA to be covered by a retirement plan at work. This status subjects your Traditional IRA deduction to income-based limitations.

For those covered by a workplace plan, the deductibility of Traditional IRA contributions is phased out based on your Modified Adjusted Gross Income (MAGI). If your income falls within a specific range, you may only take a partial deduction. If it exceeds the top end of the range, you cannot deduct your contribution at all.

For the 2025 tax year, the deductibility phase-out ranges are:

• For a single filer, MAGI between $79,000 and $89,000.
• For those married filing jointly, where the contributing spouse is covered by a workplace plan, MAGI between $126,000 and $146,000.

If your income is above these thresholds, no deduction is allowed, turning any contribution into a non-deductible one.