Does Simple IRA Contribution Limit Include Employer Match?

A Savings Incentive Match Plan for Employees (SIMPLE) IRA plan offers a streamlined retirement savings option primarily designed for small businesses with 100 or fewer employees. This type of plan provides a tax-advantaged way for both employers and employees to contribute towards retirement. It aims to encourage retirement savings by simplifying the administrative burden often associated with larger retirement plans.

Employee Contributions to a SIMPLE IRA

Employees participating in a SIMPLE IRA can make pre-tax salary reduction contributions, which can help lower their current taxable income. For 2025, the standard elective deferral limit for employees is $16,500. However, under certain conditions related to employer size and contribution type, this limit can increase to $17,600 for employees in companies with 25 or fewer employees, or for those in companies with 26 to 100 employees if specific employer contributions are met.

Employees aged 50 or older by the end of the calendar year are eligible to make additional “catch-up” contributions. For 2025, the standard catch-up contribution is $3,500, allowing an eligible employee to contribute a total of $20,000. These limits are subject to annual adjustments to account for cost-of-living increases.

Employer Contributions to a SIMPLE IRA

Employers sponsoring a SIMPLE IRA plan are required to make contributions to their employees’ accounts. They generally have two primary options for fulfilling this obligation.

One option is a dollar-for-dollar matching contribution, where the employer matches employee elective deferrals up to a maximum of 3% of the employee’s compensation. This matching percentage can be reduced to as low as 1% in no more than two out of any five-year period.

The alternative option for employers is to make a non-elective contribution of 2% of each eligible employee’s compensation. This contribution is made regardless of whether the employee chooses to make their own salary deferrals. Employer contributions to a SIMPLE IRA plan are immediately vested, meaning employees have full ownership of these funds from the moment they are contributed.

How Employer Contributions Affect Employee Limits

Employer contributions to a SIMPLE IRA do not count towards an employee’s annual elective deferral limit. These are distinct types of contributions with separate rules and limitations. The employee’s elective deferral limit, including any catch-up contributions, is a cap on the amount of their own salary they can contribute to the plan.

Employer contributions, whether matching or non-elective, are additional amounts deposited into the employee’s SIMPLE IRA account by the employer. They are separate from the employee’s personal deferrals and do not impact the employee’s ability to contribute up to their maximum individual limit.

While both employee and employer contributions accumulate within the same SIMPLE IRA account, the Internal Revenue Service (IRS) maintains separate rules for each type of contribution. Therefore, an employee can contribute their maximum allowable amount, and the employer can still fulfill their required contribution without exceeding the employee’s personal deferral limit.