SIMPLE IRA

A low-cost, tax-deductible plan allowing both employees and employers to contribute. Similar to a 401(k), but with less work.

Who is eligible for a SIMPLE IRA?

SIMPLE IRA plans are best suited for businesses that 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. Generally, employees who earned $5,000 in ANY two (2) previous years working for the employer are eligible for the SIMPLE IRA.1

A SIMPLE IRA may also be best suited for employers who do not already maintain or contribute to another employer-sponsored retirement plan in the same year.
 

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 all contributions
  • Easy administration with no special IRS tax filing
  • Retirement planning tools and resources
  • 24/7 service and support

For participants:

  • Employer contributions, based on your contribution (called matching) or a percentage of your pay
  • Pre-tax contributions for participants, like a 401(k) plan
  • Tax-deferred earnings

What are the tax implications of a SIMPLE IRA?

  • All contributions are tax-deductible for the employer. Contributions and earnings grow tax-deferred and are not taxed until withdrawn.
  • Pre-tax deferrals: Employee salary deferral contributions are made before federal income tax is deducted.
     

What are the pricing details for a SIMPLE IRA?

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 apply.2 

Find out more about our ​fees and minimums

Employers: Want to learn more about Schwab's SIMPLE IRA plan?

Get Started - Employers

Establish your SIMPLE IRA as an employer.

Step 1

Complete the required forms to establish your plan and account.

Here are all the documents you'll need to set up your plan.

Douments for Your Records

Step 2

Receive your Group ID/Master Account Number.

Once your plan is established, you'll receive a welcome letter with your Group ID/Master Account Number. Provide all eligible employees with this number.

Step 3

Provide the necessary resources for employees to enroll.

Your employees have the option to open their accounts online or by mailing in an application. Download, print, and distribute the following documents to each eligible employee who wishes to apply by mail. Or, direct them to the "Get started – Employees" section below, which will provide directions to enroll online.

*Note: Before distributing the Participant Notice & Summary Description to your eligible employees, complete the document in accordance with the elections you made on the Adoption Agreement. Keep the completed original for your records and provide a copy to each eligible employee. You will do this annually during Open Enrollment.

Complete & Return to Schwab

Documents for You & Your Employees

Step 4

Start making contributions.

To fund your plan, print and complete the "Contribution Transmittal Form" below.

*Note: Step 3 must be complete before you can start making contributions. Schwab does not accept the 5305 or 5304 IRS Model Plan, or any other provider's Model Plan.

Complete & Return to Schwab


Get Started - Employees

Enroll in your SIMPLE IRA account as an employee.

You have the option to open your account online or by mailing in an application if your employer has:

  • Already established a Schwab SIMPLE IRA retirement savings plan to help you meet your retirement goals
  • Advised that you are eligible to participate
  • Provided you with a copy of the Participant Notice & Summary Description

To enroll and set up your account online, review the Employee Instructions and complete the Employee Deferral Agreement.

If you prefer to open your new account by paper application, download the documents below, fill them out, and return them to your employer. For questions or help completing the SIMPLE IRA forms, contact your employer or Plan Administrator.

Complete & Return to Your Employer

Common questions

If you have a specific question that's not answered here, please call us at 800-435-4000

Employees can contribute up to 100% of compensation or a maximum of $16,000 for 2024 ($15,500 for 2023); for those age 50 and older, $19,500 for 2024 ($19,000 for 2023).  
 
What is different in 2024? 

  • Employers with 25 employees or fewer (who earned $5,000 or more in 2023) must allow an increased employee salary deferral limit of $17,600 (plus a $3,850 catch-up limit for those age 50 and older). 
  • While employers with 26 to 100 employees (who received at least $5,000 in compensation in 2023), may voluntarily allow the increased salary deferral limits above, the employer had to provide prior notice of the higher limits to all employees at least 60 days before the end of 2023. Larger employer contributions are also required if the higher limit was communicated in time. 

The plan is funded with contributions deducted from employees' salaries, and annual employer contributions. Each eligible employee can decide whether or not to participate and how much to contribute, but annual employer contributions are mandatory with few exceptions. For more information, see the answer to "What do I need to know about contributions?". 

Although, employers may decide to match only those employees who contribute or may provide a contribution to all eligible employees. Every year, employers may switch between match OR contribute for all, if desired. Sixty days before each year, employers must complete the Summary Description and provide this notice to employees listing the type of employer contribution that will be made for the upcoming year. 

To make contributions for the current year, 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. 

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. 
  • If employees take any withdrawals, Schwab will report distributions on IRS form 1099R. 
  • Full vesting is immediate. 
  • Generally, business owners and employers may not maintain any other retirement plans such as SEP IRAs, profit-sharing, or 401(k) plans in the same calendar year that they offer a SIMPLE IRA plan. Under the SECURE 2.0 Act, there is an exception for a replacement 401(k) plan. Please review current IRS guidance if you are interested in replacing an existing SIMPLE IRA with a 401(k) plan. (Unionized employees are an exception to this rule.) 
  • If the number of people you employ exceeds 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. Only employees earning $5,000 or more in the previous year are counted to determine the 100 employee limit. 

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 of 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 $6,900 for 2024 ($6,600 for 2023). Employees do not have to make contributions themselves to get the nonelective contribution. 

New for 2024: Employers with 25 employees or fewer (who earned $5,000 or more in 2023) must allow an increased employee salary deferral limit of $17,600 (plus a $3,850 catch-up limit for those age 50 and older). 

While employers with 26 to 100 employees (who received at least $5,000 in compensation in 2023) may voluntarily allow the increased salary deferral limits above, the employer has to provide prior notice of the higher limits to all employees at least 60 days before the end of 2023. Larger employer contributions are also required if the higher limit was communicated in time. 
 

Withdrawals are penalty-free after age 59½. If you do not start Required Minimum Distributions (RMDs) by age 73, you may have to pay a penalty. 
 
The new SECURE 2.0 reduces the 50% penalty for missing an RMD effective for RMDs in 2023; it does not impact missed RMDs in 2022. Under SECURE 2.0, if you don't take your RMD by the IRS deadline, a 25% excise tax on insufficient or late RMD withdrawals applies. If the RMD is corrected timely, the penalty can be reduced to 10%. Follow the​ IRS guidelines and consult your tax advisor. 
 
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 causing a 10% (or 25%) 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 non-reimbursed expenses exceeding 7.5% of adjusted gross income 
  • Withdrawals made in equal installments over the account holder's life expectancy 

The SIMPLE IRA Adoption Agreement contains the specific requirements elected by the employer. Under IRS rules, employees must be included if they earned at least $5,000 (with the employer) in any two (2) previous years and are "expected" to earn at least $5000 in the year contributions will be made to the plan.

Employers will need to complete and supply a copy of a SIMPLE Summary Description to each eligible employee every year. Employees need to receive the completed Summary Description at least 60 days before each new calendar year begins. Every year, Schwab will send employers a Summary Description template to assist employers with this requirement.