SIMPLE IRA Contribution Limits

Contribution Limits and Catch-Up Contribution Limits from 2005-2016

SIMPLE IRA Contribution Limits
The SIMPLE IRA contribution limits and catch-up contribution limits are set by Congress and released by the IRS each year to reflect the inflation adjustment.. Roy Scott / Ikon Images / Getty Images

The SIMPLE IRA, an acronym that stands for "Savings Incentive Match Plan for Employees Individual Retirement Account", was established by Congress as a way to help small business owners afford a retirement plan for their employees without burdening these entrepreneurs with a lot of hassle, costs, or record keeping.  

There are multiple benefits to a SIMPLE IRA.  It allows the workers to have money withheld from their paychecks up to an annual contribution limit (see SIMPLE IRA Contribution Limit Chart 2005-2016 at the end of this paragraph for a handy reference of the maximum amount permissible by tax year), while receiving a tax deduction.

 Employers often offer free 100% matching money on between 1% and 3% of employee contributions, though there is some leeway to vary that over time within a predetermined formula.  Alternatively, employers may offer a fixed rate contribution (e.g., 2% of compensation) that is deposited into the SIMPLE IRA regardless of whether or not the employee made any contributions.  Money within the SIMPLE IRA compounds tax-deferred until withdrawn and can be invested in stocks, bonds, mutual funds, index funds, ETFs, REITs, and a wide range of other securities depending upon the selected plan sponsor.

SIMPLE IRA Contribution Limits for 2005-2016

Tax Year of SIMPLE IRA ContributionMaximum SIMPLE IRA Contribution Limit for Workers 49 and YoungerMaximum SIMPLE IRA Contribution Limit for Workers 50 and Older

How a SIMPLE IRA Works

If an employee makes a withdrawal prior to the age of 59.5 years old, he or she will be subject to Federal, state, and in some cases, local taxes, plus an additional 10% penalty tax rate to punish them for raiding their account.  If the withdrawal occurs within the first two years of making an initial deposit to the SIMPLE IRA, the penalty tax that is assessed on top of the ordinary taxes is a whopping 25%.


This might seem harsh but given that the money contributed and compounded to and within a SIMPLE IRA is granted what amounts to effectively unlimited bankruptcy protection in the United States, it is almost always a mistake to tap any funds you've built up within one.  If you find yourself in financial trouble, it'd be better to consult with a bankruptcy attorney who very well might tell you not to touch a penny.  That way, when and if you are wiped out, you can emerge from the courthouse with retirement assets already working for you, shaving years off the rebuilding process and securing a far more comfortable retirement.

A lot of stock brokers such as Charles Schwab & Company will administer these plans for the small business at little or no cost.  Some SIMPLE IRA plans allow the employee to choose the institution with which he or she wants to open an account, while others do not permit such freedom; an election the employer must make at the time the plan is established.

For the tax years 2015 and 2016, the annual SIMPLE IRA contribution limit is $12,500 for those 49 years and younger (this does not include any matching money, which would be added on top of the employee contribution as icing on the cake).

 Employees who are 50 or older can contribute an extra $3,000 in what is known as a "make-up contribution" bringing their annual total contribution limit to $15,500.  Employees who are 70.5 years or older are not allowed to participate.

For more information, read our Guide to Retirement Account Contribution Limits.

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