Handbook / Retirement accounts

SIMPLE IRA for a small business in the 2026 tax year: limits, matching and set-up

Tax-year note: Tax information on this page applies to the 2026 tax year (returns filed in 2027), from IRS pages checked in November 2026. Figures and dates are labelled with their tax year where they appear. Check current IRS pages before you rely on them.

The SIMPLE IRA, short for Savings Incentive Match Plan for Employees, is designed for small employers that want a workplace retirement plan without the cost and administration of a full 401(k). It suits a business owner who has, or plans to have, a few employees. This guide covers how it works in the 2026 tax year.

Who can use it

According to the IRS, a SIMPLE IRA plan is:

• available to any small business, generally with 100 or fewer employees
• set up by adopting Form 5304-SIMPLE, Form 5305-SIMPLE, a prototype or an individually designed plan
• not allowed alongside any other retirement plan of the employer
• free of annual filing requirements for the employer

Self-employed people can participate in their own SIMPLE IRA plan.

How contributions work

Only two kinds of money go into a SIMPLE IRA:

1. Employee salary reduction contributions, also called deferrals.
2. Employer contributions, either matching or nonelective.

Deferral limits for 2026

The IRS gives these limits for 2026:

• Deferrals: up to $17,000.
• Catch-up, age 50 and over: an extra $4,000 for most SIMPLE plans.
• Catch-up, ages 60 to 63: a higher limit of $5,250.

A higher deferral limit of $18,100 can apply to employers with 25 or fewer employees, and in certain cases to larger employers that make higher contributions. Ask your provider which limits your plan uses.

If you also defer into another employer's plan, such as a 401(k) at a job, your total deferrals across plans are subject to an overall limit.

Employer contributions

Each year the employer chooses one formula:

• Matching: dollar for dollar up to 3% of each employee's compensation. The employer may reduce this to as low as 1% in no more than 2 of any 5 years.
• Nonelective: 2% of compensation for every eligible employee, whether or not they defer. For this formula, compensation is limited to $360,000 for 2026.

The IRS notes that employers with 26 to 100 employees can use a higher 4% match or 3% nonelective contribution if they adopt the higher limit.

For a self-employed owner, compensation means net earnings from self-employment, so the owner's own match is based on those earnings.

Setting it up

The IRS says you can set up a SIMPLE IRA plan effective on any date from January 1 through October 1 of a year, if you did not previously maintain one. A new employer that comes into existence after October 1 can set one up as soon as administratively feasible.

Steps usually include:

1. choose a financial institution and plan document
2. adopt the plan
3. give eligible employees notice and an election period
4. set up payroll deductions

Deposit deadlines

The IRS sets two deadlines:

• Deferrals: within 30 days after the end of the month in which the amounts would otherwise have been paid in cash, including for self-employed individuals.
• Employer contributions: by the due date of the employer's federal income tax return, including extensions.

Late deposits are a common mistake. Automating payroll deposits avoids them.

Pros and cons

Advantages

• low cost and paperwork
• employees can save through payroll
• predictable employer cost

Drawbacks

• lower deferral limit than a 401(k)
• employer contribution is mandatory each year
• no other plan allowed
• for withdrawals before age 59½ in the first two years of participation, the IRS says the 10% additional tax rises to 25%

SIMPLE IRA or another plan?

If you work alone, compare the SIMPLE IRA with the plans in SEP IRA vs solo 401(k), which usually allow more. If you are about to hire, the SIMPLE IRA is often the easiest first workplace plan. The guide to hiring your first employee covers the other obligations, and the working-alone overview of retirement plan types puts all the options side by side.

For the 2026 tax year, a SIMPLE IRA allows $17,000 in deferrals plus catch-ups, with a 3% match or 2% nonelective employer contribution. Set it up by October 1, deposit on time, and compare it with one-person plans if you have no staff.