SIMPLE IRA

A Savings Investment Match Plan for Employees (SIMPLE IRA) is an easy and low-cost way to set up a retirement program for self-employed individuals and small businesses with 100 or fewer employees. Eligible employees can fund their own SIMPLE IRA accounts through regular salary deferrals and Employers make additional contributions.

Overview

What are the benefits of a SIMPLE IRA?

  • For Employers:

    • A way to contribute to your own retirement easily and regularly, and help your employees contribute to theirs
    • A low-cost plan funded mainly by employees
    • Business expense deductions for employee contributions
    • Easy administration with no tax filing
    • Retirement planning tools and resources
    • 24/7 service and support.
  • For Participants:

    • Employer-matched contributions of up to 3% of annual compensation
    • Tax-deferred earnings
    • Pre-tax contributions for participants

Account Pricing

There is no fee to open or maintain an account at Schwab.

  • Minimum opening deposit: $0
  • $0 account open or maintenance fees. Other account fees, fund expenses, and brokerage commissions may apply1.
  • Trade commissions: $0 per online listed equity trades;2 $0 per Schwab ETF online trade in your Schwab account3

Find out more about our fees and minimums.


Related Questions

Have questions about this account? Here are responses to some of the most common questions we hear. If you have a specific question that’s not answered here, please call us at 800-435-4000.

Get detailed instructions on how to Establish Your Plan, or call us at 800-435-4000 if you have questions.

A SIMPLE IRA may be appropriate for businesses with 100 or fewer employees seeking a low-cost plan that’s easy to administer and maintain.

If you are self-employed or own a business with 100 or fewer employees, you are eligible to establish a SIMPLE IRA plan, as long as it is the only retirement plan you fund. Companies maintaining another employer-sponsored retirement plan in the same year are not eligible. You must generally include all employees age 21 and over if they received at least $5,000 in compensation during any two prior years and if you reasonably expect that they will receive at least $5,000 in the current year.4

Employer contributions are tax-deductible. Earnings grow tax-deferred, and you pay no taxes on assets until you withdraw them in retirement.

The plan is funded with contributions deducted from employees’ salaries, as well as annual employer contributions. Each eligible employee can decide whether or not to participate and how much to contribute, but employer contributions are mandatory.

Employees can contribute up to 100% of compensation or a maximum of $13,500 for 2021 or $14,000 for 2022. If the employee is age 50 or over, they may contribute up to $16,500 in 2021 and $17,000 in 2022.

New plans must be established by October 1. Employer contributions must be made annually by the employer’s tax-filing deadline, including extensions. Employee contributions are deducted from employees’ salaries and must be deposited at least monthly.

  • SIMPLE IRAs are easy to set up and maintain. IRS filing, tax reporting, and compliance testing are not required.
  • Schwab reports all contributions and end-of-year fair market value on Form 5498 by May 31 each year.
  • Full vesting is immediate

Withdrawals are penalty-free after age 59½. If you do not start Required Minimum Distributions (RMDs) by age 70½ (if you were born before July 1, 1949) or age 72 (if you were born on or after July 1, 1949), you will face a 50% penalty on the total amount of the distribution. Withdrawals before age 59½ are subject to a 10% penalty, and the penalty is increased to 25% if the withdrawal occurs within the first two years of participation in the SIMPLE IRA.

There are certain exceptions for which you can withdraw funds before age 59½ without taking a 10% penalty, including:

  • Rollover of distributions to another IRA or employer plan
  • Higher education expenses for you or family members, including tuition, fees, books, supplies, and room and board (must be enrolled at least half-time)
  • First-time home purchase expenses ($10,000 lifetime limit) to buy, build, or rebuild a first home for you or your parents, children, or grandchildren (Note: You must not have owned a home within the past two years.)
  • Death or disability
  • Birth or adoption expenses
  • Certain medical expenses, including qualifying health insurance costs for certain unemployed individuals and nonreimbursed expenses exceeding 7.5% of adjusted gross income
  • Withdrawals made in equal installments over the account holder’s life expectancy

SIMPLE IRAs offer an easy way for business owners to contribute to a retirement plan while offering one to employees as well. These plans are low cost, easy to administer and maintain with no need to file with the IRS.

You and your employees can contribute up to a maximum of $13,500 a year (for tax year 2021) and $14,000 a year (for tax year 2022), whichever is less. If you or your employees are over age 50, you can contribute an additional $3,000 (for tax year 2021 and 2022).

With the matching option, you match the employee contribution dollar for dollar up to 3%, not to exceed the salary deferral limit for that year. In any two out of five consecutive years, you may match a smaller percentage, not less than 1%. You only contribute to the retirement accounts for the eligible employees who make salary deferral contributions.

The nonelective contribution option requires that you contribute 2% of each eligible employee's compensation up to a maximum of $5,800 (for tax year 2021) and $6,100 (for tax year 2022). Employees do not have to make contributions themselves

As an employer, you must employ 100 people or fewer, each of whom earned at least $5,000 during the previous year. This includes all employees, regardless of whether or not they are eligible to participate in your SIMPLE IRA plan. Employees who earned $5,000 are eligible for the SIMPLE IRA.

Employees who are not eligible, or who can be excluded from the eligible category, include those who belong to organized unions and any nonresident alien employees who received no U.S. wages, salaries or other personal services compensation from you.

You must establish a new SIMPLE IRA plan between January 1 and October 1 of the tax year unless your business is established after October 1.

You may not maintain any other retirement plans such as SEP-IRAs, profit-sharing or 401(k) plans. (Unionized employees are an exception to this rule.)

If the number of people you employ goes over 100, you can still maintain your SIMPLE IRA plan for two years after the first year the 100-employee limit is exceeded. After two years, if you still employ more than 100 people, you are no longer eligible to maintain a SIMPLE IRA plan.


Employers - Establish Your Plan

Employers: Follow these instructions to establish and contribute to a new Schwab SIMPLE IRA Plan*. Need help? Call 800-435-4000.

  1. Review the basic plan document, which describes and governs your account, and keep it for your records.
  2. Print and complete the adoption agreement. Retain a copy and return the signed original to Schwab.
  3. Print and complete your employer's agreement. Retain a copy and return the signed original to Schwab.
  4. Read answers to frequently asked questions about the Schwab SIMPLE IRA.
  5. Optional: Review the benefits, features, and contribution eligibility of the plan.

Employer Next Steps

After you’ve done your initial paperwork, here are the next steps.

Refer your employees (Participants) to the "Participants - Enroll in Your Company’s Plan" tab

OR

Download, print, and distribute the following documents to each eligible employee.

1. Provide the following instructions to employees.

Employee Instructions

2. Provide plan information to employees (optional).

Information Sheet for Employees

3. Answer employee questions about the Schwab SIMPLE IRA.

Employee Q&A

4. Complete this form in accordance with the elections you made on the Adoption Agreement. Use the completed original as a master and provide a photocopy to each eligible employee.

Participant Notice and Summary Description*

5. Ask each participating employee to fill out an application.

Account Application

6. Ask participants to decide how much they wish to contribute.

Elective Deferral Agreement

7. Distribute the pricing guide to participating employees.

Charles Schwab Pricing Guide

*Note: Before distributing the Participant Notice and Summary Description to your eligible employees, complete the document in accordance with the elections you made on the Adoption Agreement.

Once you have established your Schwab SIMPLE IRA plan, opened your own SIMPLE IRA, and opened SIMPLE IRAs for eligible employees (as applicable), you may begin making contributions. To fund your plan, print and complete the Contribution Transmittal Form. Be sure your check total matches the total amount of participant contributions. Mail your check and the transmittal form to the nearest Schwab operations center listed below:

Charles Schwab & Co., Inc.
P.O. Box 628291
Orlando, FL 32862-8291

Charles Schwab & Co., Inc.
P.O. Box 982600
El Paso, TX 79998-2600

*Note: Schwab does not accept the 5305 or 5304 IRS Model Plan, or any other provider's Model Plan.


Participants - Enroll in Your Employer Plan

If your Employer has already established a Schwab SIMPLE IRA retirement savings plan to help you meet your retirement goals, and they have had advised you that you are eligible to participate, follow these instructions to open your SIMPLE IRA Account.

Your Employer should have already provided you with the Schwab SIMPLE IRA Enrollment Kit. Review the enclosed Employee Q& A and the Participation Notice & Summary Description included in that kit to learn all about the Schwab SIMPLE IRA.

  1. Download, print and save the following documents below.
  2. Click on Open a Simple IRA Account below to immediately open your account online.

If you prefer to open your new account by paper application, download the documents below, complete and return them to your Employer.

*Note: Schwab does not accept the 5305 or 5304 IRS Model Plan, or any other provider's Model Plan.

Enrollment Instructions

  1. Download and Read the Employee Instructions and follow the instructions if you plan to print, complete your application by paper.
  2. Download and Complete the Elective Deferral Agreement. Be sure to indicate whether you want your salary deferred as a percentage or fixed amount. Return this document to your employer.
  3. If choosing to complete your Schwab IRA Account Application by paper, complete the application and return it to your employer along with your completed Elective Deferral Agreement. Otherwise, click on "Open a SIMPLE IRA Account" to begin your enrollment and open your Account online.

NOTE: For questions or help completing the SIMPLE IRA forms, see your employer or Plan Administrator.

Take the Next Step

  • Employers-Establish Your Simple IRA Plan today.

    Get detailed instructions above in the
    "Employers - Establish Your Plan" section

    Call 800-435-4000.

  • Participants/Employees – Open a SIMPLE IRA Account

    If your Employer has already established a Schwab SIMPLE Plan, you can apply for your SIMPLE IRA Account.

    You will be required to provide your Employer’s SIMPLE IRA Group ID during the Account Open process.

    Get detailed instructions above in the "Participants - Enroll in Your Employer Plan" section.