SIMPLE IRA contribution limits for 2024
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BLUEPRINT
Published 8:59 a.m. UTC Nov. 7, 2023
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Key points
- The SIMPLE IRA is a flexible and tax-advantaged option for small businesses.
- Employer and employee SIMPLE IRA contributions can provide a dual savings stream.
- Knowing the SIMPLE IRA contribution limits helps you optimize your savings strategy.
If you’re a small-business owner or employee, you likely want to find an effective way to save for retirement without the administrative headache that accompanies other employer-sponsored retirement plans. With a simple incentive match plan for employees individual retirement account, or SIMPLE IRA, you can do just that.
The SIMPLE IRA is a relatively easy way for small-business owners and employees to contribute to their futures in a tax-advantaged way. But even in this environment of straightforward retirement investing, there are some things you should know, including how SIMPLE IRAs work, who can participate and what the contribution limits are.
What to know about SIMPLE IRAs
The Small Business Job Protection Act of 1996 created the SIMPLE IRA, which is generally tailored to small businesses and self-employed individuals. It is designed with simplicity and accessibility and boasts inexpensive and straightforward administration.
“A SIMPLE IRA is a small-business-sponsored retirement plan that, as the name indicates, is simple to establish and maintain,” said Craig Reid, a certified financial planner and the president and national practice leader of retirement and wealth at Marsh McLennan Agency. “Available to U.S. companies with (100 or fewer) employees, SIMPLE IRAs are a cost-effective alternative to the mainstream 401(k) plan.”
Both employees and employers can contribute to this tax-deferred plan.
An employee can choose to make salary reduction contributions, meaning a portion of their salary is put directly into their SIMPLE IRA, up to the legal limit. Employer contributions, on the other hand, are mandatory.
Like other retirement plans, the SIMPLE IRA has its own rules, which we explain below.
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SIMPLE IRA eligibility requirements
The eligibility requirements for SIMPLE IRAs are low, which can be a major benefit for employers and employees.
To be eligible to establish a SIMPLE IRA plan, an employer generally must meet the following two criteria:
- It must have 100 or fewer employees.
- There must be no other retirement plan.
To be eligible for inclusion in an employer’s SIMPLE IRA plan, an employee generally must meet the following two criteria:
- They must receive at least $5,000 in compensation during any two prior years.
- They must reasonably expect to receive at least $5,000 in the current year.
Tip: An employer can use less restrictive participation requirements, such as eliminating or reducing the prior year’s compensation amount. But it cannot impose additional conditions for employee participation.
SIMPLE IRA contribution limits for 2024
Knowing the contribution limits for your SIMPLE IRA is key when it comes to planning for retirement. As we move into the specifics for 2024, we’ll examine both employer and employee contributions.
Employee contributions
An employee can — but is not required to — make salary reduction contributions to a SIMPLE IRA. The maximum amount an employee under age 50 can contribute to a SIMPLE IRA is $16,000 in 2024.
Participants can contribute to a SIMPLE IRA and another retirement plan as long as they do not go over the contribution limits for the year.
If a SIMPLE IRA plan permits it, employees who are 50 or older will have an additional savings option available to them in the form of catch-up contributions. The catch-up contribution limit for SIMPLE IRA plans is $3,500 in 2024.
Employer contributions
An employer is generally required to do one of the following:
- Match each employee’s salary reduction contribution dollar for dollar up to 3% of the employee’s compensation. While an employer may choose to match less than 3%, it must match at least 1% and for no more than two out of five years. Only employees who make contributions will receive employer-matching contributions.
- Make nonelective contributions of 2% of the employee’s compensation. Employers that choose to make nonelective contributions must make them for all eligible employees, regardless of whether the employees make contributions. An employee’s compensation up to $345,000 for 2024 is taken into account to figure the contribution limit.
With these 2024 SIMPLE IRA contribution limits in mind, employees and employers can effectively plan their investments for the year, helping them secure a solid financial future.
How 2024 contribution limits compare to 2023
The SIMPLE IRA contribution limits are adjusted annually to account for cost-of-living increases. You must know the limits from year to year so you can plan your contributions accordingly and not run afoul of IRS rules.
With that in mind, let’s compare the contribution limits from the past two years.
SIMPLE IRA contribution limits for 2024 and 2023
As the table shows, there were slight increases for everything but SIMPLE IRA catch-up contributions for 2024 compared to 2023. Whether you’re an employee making salary reduction contributions or catch-up contributions or an employer making nonelective contributions, these increases in limits allow for a little more savings toward a secure retirement. It’s a welcome change that highlights the continuous evolution of retirement planning.
Why do IRA contribution limits exist?
You might wonder why there’s a limit on how much you can contribute to your SIMPLE IRA each year. That’s a fair question. The answer lies at the intersection of tax policy and retirement savings incentives.
The government established contribution limits for a couple of reasons. First, they help maintain a balance between giving tax benefits for retirement savings and ensuring revenue for the government.
“IRA contribution limits essentially help the government manage tax revenues and maintain fiscal responsibility,” said Brian Colvert, a certified financial planner and the CEO of Bonfire Financial. “Without limits, individuals could shelter large amounts of money from taxation, potentially reducing government revenue.”
Contribution limits also help level the playing field among savers across income levels. They prevent wealthier individuals from stashing away excessive amounts of money in tax-advantaged accounts, ensuring the benefits are equally accessible.
While they may sometimes be frustrating, contribution limits are crucial in maintaining a fair and balanced retirement savings landscape.
If you exceed the SIMPLE IRA contribution limit, you’ll have an opportunity to remove the excess contributions and any earnings by the tax deadline. Failure to withdraw the excess contributions will result in a 6% tax each year they remain in the account.
There’s no age at which you can no longer contribute to a SIMPLE IRA. You can contribute to a SIMPLE IRA as long as you remain employed by a business that offers one. But once you reach age 73, you must take required minimum distributions.
You can change your contribution level during the plan’s election period. The election period must last at least 60 days, and you must receive prior notice. SIMPLE IRAs must have an election period from Nov. 2 to Dec. 31, but they can have more election periods throughout the year.
Yes, SIMPLE IRA limits are lower than 401(k) limits. The 2024 contribution limit for SIMPLE IRAs is $16,000, with an additional $3,500 catch-up contribution for savers 50 or older. The 2024 contribution limit for 401(k)s is $23,000, with an additional $7,500 catch-up contribution for savers 50 or older.
Blueprint is an independent publisher and comparison service, not an investment advisor. The information provided is for educational purposes only and we encourage you to seek personalized advice from qualified professionals regarding specific financial decisions. Past performance is not indicative of future results.
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