SIMPLE IRA: Roth and Traditional
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 employees:
- 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 for pre-tax employee contributions and employer contributions to the SIMPLE IRA
- Roth salary deferral contributions (if allowed by the employer) starting January 1, 2026, with potential for tax-free withdrawals. See common questions for more details
What are the tax implications of a SIMPLE IRA?
- For the business/employer, all contributions made to the SIMPLE IRA are tax-deductible for the company.
- As an employee in a SIMPLE IRA, tax implications have important differences for Roth SIMPLE versus Traditional SIMPLE contributions.
See common questions for more details.
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.
Roth vs Traditional SIMPLE IRA contributions
Beginning in the 2026 plan year, Schwab SIMPLE IRA plans allow employees to make Roth salary deferral contributions. That means eligible employees can now choose to contribute on an after-tax basis (Roth) or a pre-tax basis (Traditional)—or a combination of both, depending on the plan setup.
Roth vs Traditional SIMPLE IRA contributions
Contribution type | When taxes are paid | How withdrawals are taxed |
---|---|---|
Roth (After-tax) | Taxed now (no reduction in taxable income) | Tax-free earnings* |
Traditional (Pre-tax) | Reduces taxable income now | Taxed as income—including earnings—when withdrawn |
*Roth accounts allow tax-free withdrawal of earnings for "qualified withdrawals," meaning you're at least age 59½ and have had the Roth account for 5 years or more. Early withdrawals may be subject to additional taxes or penalties, especially within the first two years of participation.
Only employee salary deferrals, not employer contributions, can be designated as Roth in Schwab SIMPLE IRA plans. Employer contributions remain pre-tax.
Want to know more about how Roth and Traditional SIMPLE IRA contributions work—including rules on withdrawals and required minimum distributions? See our common questions.
Establish your SIMPLE IRA as an employer.
Complete the required forms to establish your plan and account.
Here are all the documents you'll need to set up your plan.
Complete & return to Schwab
Documents for your records
- Basic Plan Document
- SIMPLE Employer Q&A
- Employer Election Form
(Complete and retain in 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.
Provide the necessary resources for employees to enroll.
Direct your employees to the Get started - Employees section below to have them open their account online.
- Your employees have the option to open their accounts online or by mailing in an application. Download, print, and distribute the following documents to employees who wish to apply by mail.
*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
- Employee Instructions
- Participant Notice & Summary Description
- Employee Deferral Agreement: Ask employees to decide how much they want to contribute.
- Employee Q&A
- Pricing Guide
Start making contributions.
To fund your plan, print and complete the Contribution Transmittal Form below. If you would like to make ACH contributions to your plan, please complete and submit the SIMPLE ACH/MoneyLink Form as well.
*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
Enroll in your SIMPLE IRA 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.
Step 1
Open a Schwab SIMPLE IRA account, whether Roth, Traditional, or both.
Step 2
Complete the Employee Deferral Agreement and return it to your employer.
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
- Account Application
- Employee Deferral Agreement: Decide how much you want to contribute.
Documents for your records
Common questions
If you have a specific question that's not answered here, please call us at 800-435-4000.
SIMPLE IRAs
Employer timeline:
Before November 1, 2025:
- Choose whether to allow your employees to make Roth salary deferral contributions.
- Complete and give your 2026 SIMPLE Summary Description to all your employees. Make sure to let employees know if Roth employee salary deferral contributions will be allowed in 2026.
Before January 1, 2026:
- Gather employee payroll elections and new employee account numbers. Update your payroll for your first pay in 2026.
After January 1, 2026:
- Start sending contributions to Schwab.
Employee timeline:
After November 1, 2025:
- Start reviewing the 2026 SIMPLE Summary Description provided by your company to see if Roth employee salary deferrals are allowed.
- Complete your payroll election for 2026 and open a new Roth SIMPLE account if you plan to make Roth employee salary deferrals.
Before January 1, 2026:
- Give your payroll election and Roth SIMPLE account number to your company.
For the business/employer, all contributions made to the SIMPLE IRA are tax-deductible for the company.
As an employee in a SIMPLE IRA, tax implications have important differences for Traditional SIMPLE versus Roth SIMPLE contributions.
Roth SIMPLE:
- Employer contributions: Currently, these contributions are not permitted.
- Roth deferrals: Employee salary deferrals made as Roth contributions are taxed with each payroll (after-tax contributions).
- Earnings & withdrawals: This account allows earnings to grow tax-free, even when later withdrawn. If the employee is at least age 59½ and has had a Roth account for 5 years, all withdrawals are tax-free.
Traditional SIMPLE:
- Employer contributions: Matching and other company contributions go in without employees having to pay federal income taxes.
- Pre-tax deferrals: Employee salary deferrals may also be made before federal income taxes are deducted.
- Earnings & withdrawals: This account allows earnings to grow and not be taxed until withdrawals are made. Any withdrawals are fully taxable.
Contribution limits for 2025:
Employees can contribute up to 100% of compensation or a maximum of $16,500 ($16,000 for 2024); for those age 50 and older, $20,000 ($19,500 for 2024).
Some plans have higher limits in 2025:
- Employers with 25 or fewer employees (who earned $5,000 or more in 2024) must allow an increased employee salary deferral limit of $17,600 (plus a $3,850 catch-up limit for those age 50 and older).
- Employers with 26–100 employees (who received at least $5,000 in compensation in 2024) may choose to allow the increased salary deferral limits above for 2025. Employers must have provided prior notice of the higher limits to all employees at least 60 days before the end of 2024. Larger employer contributions are also required if the higher limit will be allowed and was communicated in time.
- Employees age 60 to 63 may increase their catch-up to $5,250.
New in 2026: If your plan allows it, you may choose to make employee contributions on an after-tax (Roth) or pre-tax (Traditional) basis, or a mix of both.
- Roth contributions are taxed up front but may offer tax-free withdrawals in retirement if the withdrawal is a qualified distribution.
- Traditional contributions reduce your taxable income today but are taxed upon withdrawal. Only employee salary deferrals can be made as Roth contributions; employer contributions remain Traditional.
NOTE: Roth and Traditional amounts are tracked separately for tax reporting and require two separate SIMPLE accounts: a Traditional SIMPLE account and a Roth SIMPLE account.
The plan is funded with contributions deducted from employees' salaries and annual employer contributions. Eligible employees can decide whether or not to participate and how much to contribute, but annual employer contributions are mandatory with few exceptions. See "What do I need to know about contributions?" for more information.
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.
Roth and Traditional contributions are tracked separately for tax purposes, including how they're reported to the IRS. Only employee salary deferrals can be designated as Roth. Schwab SIMPLE IRA plans do not currently allow Roth employer contributions. Roth deferrals are included in payroll taxes when made to the plan. Withdrawals, including earnings, will be tax-free if withdrawn after age 59½ and the account is at least 5 years old.
Pre-tax deferrals and employer contributions are not federally taxed when made to the plan. All withdrawals will be taxed. Roth deferrals are included in payroll taxes when made to the plan.
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.
- 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% or 4% of employee compensation, 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 $7,000 for 2025 ($6,900 for 2024). Employees do not have to make contributions themselves to get the nonelective contribution.
New for 2024 and later: Employers with 25 employees or fewer (who earned $5,000 or more in 2024) must allow an increased employee salary deferral limit of $17,600 (plus a $3,850 catch-up limit for those age 50 and older) in 2025. No additional employer contributions are required.
While employers with 26 to 100 employees (who received at least $5,000 in compensation in 2024) may voluntarily allow the increased salary deferral limits above for 2025, the employer had to provide prior notice of the higher limits to all employees at least 60 days before the end of 2024. Larger employer contributions are also required if the higher limit was communicated in time. Employers must make either a 4% dollar-for-dollar match, or a 3% non-elective contribution of employee compensation.
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. RMDs are not required from your Roth account during your lifetime.
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. 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 $5,000 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.
Employers – Roth SIMPLE IRA FAQs
Business owners/employers may want to allow Roth contributions to the SIMPLE IRA, to make Roth contributions for themselves. Unlike the Roth IRA rules, anyone with income and eligible for the Roth SIMPLE may make a Roth contribution—Roth SIMPLE does not have any income restriction. Since Roth is one of the few ways to garner potential tax-free income, many business owners find Roth contributions to be quite helpful, both for themselves and their employees.
Allowing employees to make Roth contributions adds a valuable feature to the business' SIMPLE IRA plan, making the company benefits package more competitive. For example, many larger companies may offer a 401(k) that permits Roth contributions. Now the SIMPLE IRA will offer the same Roth option.
If the employer is new to Schwab, they first need to establish and enroll in a SIMPLE Plan and Master Account by following the steps on the page above. Once the account has been established, complete the steps described below.
If the employer is already a Schwab client, each employee will have a special second account to segregate any Roth contributions from Traditional SIMPLE contributions. Adding Roth SIMPLE to the plan requires the employer to update their payroll service for the Roth contributions, as well as to make sure that when sending in contributions, the correct Roth account number is used for the Roth contributions.
Allowing Roth SIMPLE contributions in your plan takes only a few steps.
- Update your plan document files.
a. Use the Schwab form to capture your decision to allow Roth salary deferrals. All you need to do is complete, sign, and keep it in your permanent plan files.
b. Sometime in the future, you may have to re-complete your SIMPLE Plan Adoption Agreement. Schwab will use your plan contact information to let you know if/when that is needed.
- Complete your Summary Description to allow Roth contributions.
a. Each year in early Fall, Schwab provides a Summary Description template that you complete, showing the rules for your SIMPLE IRA plan.
b. For the 2026 plan year, the Summary Description template will be updated for Roth contributions. Look for the new template in early Fall of 2025. Make sure your plan contact information is updated, including your email address, so we can email you the direct link.
- Provide the updated and completed Summary Description to your employees by November 1, 2025, for the 2026 plan year.
- Update your payroll records for 2026.
a. Gather employee salary deferral forms, or have employees update their payroll contributions on your system.
b. Gather new employee account numbers. Remember that even existing employees who start making new Roth contributions will have a new "Roth SIMPLE" account number. Add this Roth SIMPLE account number to your payroll files so that Roth contributions are credited to the correct employee account.
- Once 2026 begins, start withholding salary deferral contributions from employee pay and send in contributions.
a. Salary Deferral contributions must be deposited to the employee's account as soon as administratively feasible (generally in 7 business days) but no later than 30 days from the end of the month in which they are withheld from employee paychecks.
b. Use the Schwab Contribution Transmittal to ensure contributions are deposited correctly.
Employees – Roth SIMPLE IRA FAQs
Tax-free withdrawals: Many employees choose to make Roth contributions to garner tax-free income in retirement since any earnings on Roth contributions are not taxable when withdrawn (as long as the withdrawal meets the "qualified distribution" rules, the same as Roth IRA).
Ease of contributing through payroll: While the Roth contributions are taxed to the employee when the contribution is made to the account, this taxation applies to each paycheck so employees can see how the contribution affects take-home pay throughout the months and the year. Employees can adjust the amount they contribute either in Roth or in Traditional SIMPLE contributions to ensure enough take-home pay to cover their monthly bills. And since the employer calculates this with payroll and sends the contributions into Schwab, this is a very convenient method to make Roth contributions.
Your employer will provide a Summary Description explaining the key rules for their SIMPLE IRA plan, including whether Roth contributions are permitted, beginning for pay you earn on and after January 1, 2026. If Roth is permitted, follow these steps:
- Open your personal Roth SIMPLE IRA account.
a. Use our convenient online system or complete an IRA Application, checking the Roth SIMPLE box.
b. Obtain your Group ID/Master Account number from your employer. You will need this number to open your account.
c. If you don't already have a Traditional SIMPLE account, make sure to open one of those, too, so any matching or other employer contributions can be made into that account.
- Once you have your new account number for your Roth SIMPLE IRA, give it to your employer, reminding them it is for your "Roth SIMPLE" contributions.
- Ask your employer how to designate the amount of salary deferral contributions you will contribute as Roth and/or Traditional SIMPLE IRA contributions.
a. Usually, you will complete a Deferral Form, employer payroll form, or enter the amounts in your employer's online payroll system to list how much you would like to contribute.
b. IRS limits how much you may contribute from your pay each year. And catch-ups may apply to increase that amount once you reach age 50.
c. If your employer matches your contributions, the match will be contributed by your employer into your Traditional SIMPLE account (not your Roth SIMPLE account). But whether you make Roth SIMPLE or Traditional SIMPLE salary deferrals (payroll contributions) or a combination of both, you will get the same matching from your employer. The matching is based on the amount you contribute, not on whether it is Roth or Traditional SIMPLE.
- You are done!
a. If desired, you can review your employer payroll slips and your SIMPLE IRA account statements to confirm the correct contributions are being made.
b. Keep your SIMPLE IRA Summary Description for the rest of the year, in case you decide to make future changes to the amount contributed. You will get a new Summary Description from your employer each year by or on November 1, showing the rules for the upcoming year.