What Is the Max Contribution to a SIMPLE IRA?

A SIMPLE IRA (Savings Incentive Match Plan for Employees Individual Retirement Account) is a straightforward, tax-deferred retirement savings solution. Designed for small businesses with typically 100 or fewer employees, SIMPLE IRAs allow both employers and employees to contribute towards retirement savings. This employer-sponsored plan provides a valuable benefit without the administrative complexities of larger retirement plans. Participants can set aside money and invest it to grow for their overall financial future.

Employee Contribution Limits

For the 2025 tax year, an employee can contribute a maximum of $16,500 through elective deferrals to a SIMPLE IRA. This amount represents the base limit for individuals participating in these plans. The Internal Revenue Service (IRS) adjusts this limit periodically for inflation, so it is advisable to consult current IRS guidelines for the most up-to-date figures.

Employees aged 50 and older are eligible to make additional contributions, known as catch-up contributions. For 2025, individuals aged 50 to 59, or 64 and older, can contribute an extra $3,500. This increases their total possible employee contribution to $20,000 for the year. A specific higher catch-up contribution of $5,250 applies to those aged 60 to 63 in 2025, allowing an employee in this age bracket to contribute up to $21,750 in elective deferrals.

Employer Contribution Limits

Employers sponsoring a SIMPLE IRA plan must make mandatory contributions to their employees’ accounts each year. Employers choose between two primary contribution formulas and must notify employees of their chosen method annually. These contributions are in addition to any amounts employees choose to defer from their own salaries.

One option is a matching contribution, where the employer matches employee elective deferrals up to 3% of the employee’s compensation. Employers generally provide this 3% match, but can reduce it to a minimum of 1% in certain years. This reduction is limited to two years out of any five-year period.

The alternative is a non-elective contribution, set at 2% of each eligible employee’s compensation. Under this option, the employer contributes this percentage to all eligible employees, regardless of whether the employee chooses to make their own salary deferrals. For 2025, the maximum compensation considered for this calculation is $350,000.

Overall Account Contribution

The total amount contributed to a SIMPLE IRA in a single year combines both the employee’s elective deferrals and the employer’s mandatory contributions. This combined total represents the annual maximum that can accumulate within the account. The specific sum depends on the employee’s age and the employer’s chosen contribution method.

For example, an employee under age 50 who contributes the maximum $16,500 in 2025 could receive an additional employer contribution. If the employer provides a 2% non-elective contribution based on a $50,000 salary, this would add $1,000, bringing their total annual contribution to $17,500.

Alternatively, if the employer matches 3% of the employee’s $16,500 deferral, the employer contribution would be capped at 3% of the employee’s compensation, assuming compensation is sufficient. An employee aged 60 deferring the maximum $21,750 could also receive a 3% matching contribution under similar conditions, significantly boosting their retirement savings. The employer’s contribution is based on a percentage of compensation, not a fixed dollar amount, ensuring alignment with the employee’s earnings and highlighting the dual nature of funding these retirement plans.