SIMPLE IRA Rules: 2-Year, Withdrawal, Matches, and Contribution
New rules for SIMPLE IRA retirement plans will take effect in 2025 and 2026. These changes allow older workers to save more, while employers must contribute to employee accounts. The plan remains open to small businesses and self-employed individuals with no other workplace retirement scheme.
A SIMPLE IRA is designed for small businesses with 100 or fewer employees. It also covers self-employed workers who lack another retirement plan. To qualify, employees must have earned at least $5,000 in two previous years and expect the same in the current year.
The contribution limits will rise in the coming years. In 2025, participants can save up to $16,500, increasing to $17,000 in 2026. Employers must contribute either a dollar-for-dollar match (up to 3% or 4%) or a fixed 2% or 3% of the employee’s pay. For businesses with 26 to 100 staff, the higher rates apply, letting workers set aside up to $17,600 in 2025 and $18,100 in 2026.
Older savers get an extra boost. Those aged 50 and above can add $3,500 in 2025 and $4,000 in 2026. Workers aged 60 to 63 will qualify for an even larger catch-up of $5,250 in 2025.
Withdrawals from a SIMPLE IRA are taxed as income. Taking money out before age 59½ triggers a 10% penalty. If withdrawn within the first two years of opening the account, the penalty jumps to 25%.
The updated limits give older employees a chance to increase their retirement savings. Employers must continue contributing, either through matching or fixed percentages. The rules also maintain strict penalties for early withdrawals, encouraging long-term saving.
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