Do Employers Offer an IRA Matching Contribution?
While a standard IRA isn't eligible for an employer match, certain business retirement plans use IRAs to facilitate employer contributions.
An Individual Retirement Arrangement, or IRA, is a personal savings tool that individuals establish on their own. The concept of an employer “match,” where a company contributes to an employee’s retirement savings, is most commonly linked with employer-sponsored plans, such as a 401(k). Standard personal IRAs, including both Traditional and Roth IRAs that an individual opens and manages independently, are not eligible for employer matching contributions. These accounts are funded solely by the individual owner, subject to annual contribution limits set by the Internal Revenue Service (IRS).
However, certain types of employer-sponsored retirement plans use IRAs as the investment vehicle for holding both employee and employer contributions. These are not personal IRAs but rather employer-established plans. The two primary examples are the Savings Incentive Match Plan for Employees (SIMPLE) IRA and the Simplified Employee Pension (SEP) IRA.
The SIMPLE IRA Employer Contribution
A SIMPLE IRA is a retirement plan available to employers with 100 or fewer employees. Under this plan, employers are required to make contributions to their employees’ accounts each year. The employer has two distinct options for these mandatory contributions and must notify employees of their choice before the start of the plan year.
The first option is a matching contribution. Here, the employer matches the employee’s salary deferral contributions on a dollar-for-dollar basis, up to a limit of 3% of the employee’s compensation. For example, if an employee earning $60,000 contributes at least 3% ($1,800) to their SIMPLE IRA, the employer must contribute a matching $1,800. An employer can choose to reduce this matching percentage to a rate no less than 1% of compensation, but cannot use this reduced match for more than two years within any five-year period.
The second option is a non-elective contribution. With this method, the employer contributes 2% of each eligible employee’s compensation to their SIMPLE IRA, regardless of whether the employee contributes any of their own money. This contribution is mandatory for all employees who are eligible to participate in the plan. The 2% contribution applies to compensation up to an annual limit, which is $350,000 for 2025. The SECURE 2.0 Act introduced provisions that require higher employer contributions if the plan allows for higher employee deferral limits, requiring either a matching contribution of up to 4% of compensation or a non-elective contribution of 3%.
Understanding SEP IRA Employer Contributions
A Simplified Employee Pension (SEP) IRA operates differently from a SIMPLE IRA concerning contributions. In a SEP plan, only the employer can contribute to the employee’s account; employees are not permitted to make salary deferrals into their SEP IRA. This means the contributions are not a “match,” as they are not contingent on employee savings activity.
Employer contributions to a SEP IRA are flexible and discretionary. The employer can decide each year whether to contribute and how much to contribute, but the contributions must be uniform for all eligible employees, based on the same percentage of compensation. For example, if the employer decides to contribute 5% of compensation for the year, every eligible employee receives a contribution equal to 5% of their pay. For 2025, employer contributions are limited to the lesser of 25% of an employee’s compensation or $70,000.
Key Tax and Rollover Considerations
The tax treatment of contributions to both SIMPLE and SEP IRAs offers benefits to the employer and the employee. For the business, employer contributions are tax-deductible as a business expense. For employees, employer contributions are not included in their current taxable income. Any pre-tax salary deferrals made by an employee to a SIMPLE IRA also reduce their taxable income for the year, and all funds grow on a tax-deferred basis.
A specific rule applies to SIMPLE IRAs concerning rollovers. A two-year waiting period restricts the movement of funds out of a SIMPLE IRA, beginning on the date the first contribution is deposited. During this initial period, funds can only be rolled over to another SIMPLE IRA. Attempting to move money from a SIMPLE IRA to a non-SIMPLE IRA plan within this two-year window is considered a non-qualified distribution, which triggers a 25% early withdrawal penalty in addition to being taxed as ordinary income. After the two-year period has passed, the funds can be rolled over to other retirement plans following standard IRA rollover rules.