Does Employer Match Count Towards SIMPLE IRA Limit?

A Savings Incentive Match Plan for Employees (SIMPLE) IRA is a retirement savings vehicle designed specifically for small businesses. It provides a straightforward and cost-effective way for employers with 100 or fewer employees to offer retirement benefits. These plans aim to encourage both employers and employees to save for retirement through tax-advantaged contributions. Understanding the rules for employee and employer contributions is important for maximizing a SIMPLE IRA plan’s benefits.

Employee Contribution Limits for SIMPLE IRAs

Employees participating in a SIMPLE IRA plan can make elective deferral contributions from their salary each year. The Internal Revenue Service (IRS) sets these limits. For the 2025 tax year, an employee can contribute up to $16,500 to their SIMPLE IRA. These contributions are made on a pre-tax basis, which can reduce an employee’s current taxable income.

Older workers can make additional “catch-up” contributions. Employees aged 50 and over can contribute an extra amount beyond the standard limit. For 2025, the standard catch-up contribution for those aged 50 and over is $3,500, bringing their total possible employee contribution to $20,000. Recent changes also allow for an enhanced catch-up contribution of $5,250 for participants aged 60 to 63 in 2025, increasing their potential total contribution to $21,750. These catch-up amounts provide an opportunity for individuals nearing retirement to accelerate their savings.

Employer Contribution Requirements for SIMPLE IRAs

Employers sponsoring a SIMPLE IRA plan are required to make contributions to their eligible employees’ accounts each year. Businesses have two primary options for fulfilling this obligation, and they must choose one for all eligible employees. One option is a dollar-for-dollar matching contribution, set at 100% of the employee’s elective deferrals up to 3% of their compensation. This means an employer matches an employee’s contribution, up to that 3% threshold, but employees only receive this match if they contribute themselves.

Alternatively, an employer can choose to make a non-elective contribution to all eligible employees, regardless of whether the employee chooses to contribute from their salary. This non-elective contribution is 2% of each eligible employee’s compensation. For the 2025 tax year, the compensation considered for this calculation is limited to $350,000. Employers must make these non-elective contributions for every eligible employee.

How Employer Contributions Relate to Employee Limits

A common question is how employer contributions interact with an employee’s individual contribution limits. It is important to understand that employer contributions, whether in the form of matching funds or non-elective payments, do not count towards an employee’s personal elective deferral limit. The limits discussed for employees, such as the $16,500 basic limit or the various catch-up amounts, pertain solely to the money an employee chooses to contribute from their own salary.

Employer contributions are considered separate and are in addition to the amount an employee can personally contribute. For instance, if an employee contributes the maximum personal amount for 2025, their employer can still make their required matching or non-elective contribution to that employee’s SIMPLE IRA. This distinction allows for a greater overall amount to be saved annually than the employee’s personal deferral limit alone. While employer contributions do not reduce the employee’s deferral capacity, they significantly increase the total funds in the employee’s SIMPLE IRA.