Are you excited about 912 Day in Savannah? There is so much to celebrate in our area. We will talk about that more at the end.
In the last issue, we looked at the SEP IRA, which, abbreviated, stands for the Simplified Employee Pension Plan Individual Retirement Account. This week, we will talk about the SIMPLE IRA, which stands for the Savings Incentive Match Plan for Employees (SIMPLE IRA).
What Is a SIMPLE IRA?
The SIMPLE IRA is designed for businesses with 100 or fewer employees that want a low-cost plan allowing both the employer and employees to contribute. Unlike a SEP IRA, employees can defer part of their own salary into the plan, and the employer is generally required to contribute as well.
SIMPLE IRAs trade away some of the flexibility of a SEP or 401(k) in exchange for simplicity: there’s no annual nondiscrimination testing and minimal paperwork, which keeps administrative costs low.
How It Works
Contributions are employer-only. Employees cannot defer their own salary into a SEP IRA. The business decides each year whether to contribute and how much, up to the legal limit, which gives owners flexibility in years when cash flow is tight. Traditional IRAs are set up for employees.
How It Works
- Employee deferrals: Employees can defer up to $17,000 of salary in 2026 ($18,100 under the higher limit available to certain SIMPLE plans per SECURE Act 2.0), plus a $4,000 catch-up if age 50 or older, and $5,250 if 60 to 63.
- Mandatory employer contribution: The employer must either match employee deferrals dollar-for-dollar up to 3% of compensation, or make a flat 2% non-elective contribution for every eligible employee, whether or not they defer.
- Eligibility is broad: Generally, any employee who earned at least $5,000 in any two prior years and is expected to earn $5,000 in the current year must be allowed to participate.
- Immediate vesting: All contributions, employer and employee, are 100% vested immediately.
- Two-year transfer rule: Funds withdrawn or rolled over within the first two years of participation face a steep 25% early withdrawal penalty if not rolled into another SIMPLE IRA.
2026 Contribution Limits
| Item | 2026 Limit |
|---|---|
| Employee deferral (standard) | $17,000 |
| Employee deferral (higher limit, certain plans) | $18,100 |
| Catch-up contribution (age 50+) | $4,000 |
| Employer match option | Dollar-for-dollar up to 3% of compensation |
| Employer non-elective option | Flat 2% of compensation for all eligible employees |
Benefits and Drawbacks
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Who a SIMPLE IRA Fits Best
A SIMPLE IRA suits small businesses with employees – typically under 100 – that want to offer a real savings vehicle without the cost and complexity of a 401(k). It works especially well for businesses that don’t currently sponsor another retirement plan and want something employees can start using quickly.
It tends to be a weaker fit for owners who want to contribute the maximum possible amount for themselves, since the deferral limits are meaningfully lower than a Solo 401(k) or SEP IRA ceiling.
Next week, we are covering the Solo 401(k), the highest-contribution option available to owner-only businesses.
(READING THIS SERIES: Each article that follows covers one plan in depth: how it works, exact 2026 contribution rules, a clear list of benefits and drawbacks, and the type of business it tends to fit best. Read the overview first, then jump to the plan, or plans, most relevant to your situation.)
If you have questions or would like to discuss any of this further, I would be glad to connect.
Don’t forget to join Live Like Locals and Kia Country of Savannah on September 10th from 5:30 – 7:30 pm for the September Local Social.
Oh, and 912 Community Day & Ribbon Cutting in the City of Port Wentworth is this Saturday! Starting at 11:00 am, they will start the official ribbon-cutting of the VyStar Pavilion, the Ghost Pirates Ice Cove, the Pro Shop, and more! There will be live music, games, prizes, and local vendors until 3:00 pm. Bring the whole family, and the event is free.
I’ll see you there!
Thought for the Week:
“Success is not final, failure is not fatal: it is the courage to continue that counts.” -Winston Churchill
(This article is intended for general educational purposes only and reflects tax rules for the 2026 tax year. Tax laws are subject to change. The IRS sets contribution limits, deduction rules, and eligibility requirements annually, and they can change. This content does not constitute personalized investment, tax, accounting, financial, or legal advice. Please consult a qualified financial advisor, tax professional, ERISA attorney, or retirement plan provider before making retirement planning decisions for your business.)
Frederick Hogsett, Jr., is a licensed financial coach with almost 30 years of experience helping individuals, families, small businesses, and nonprofit organizations. His office is located in the Savannah, Georgia, area and can be reached at (803) 463-2773 or by website at www.livemore.net/fhogsettjrclient.