Do You Need a SIMPLE IRA?


Most everyone would probably answer “YES” to that question, but in the IRA world, “SIMPLE” stands for “Savings Incentive Match Plan for Employees.” A SIMPLE plan is an easy-to-use retirement savings plan that operates like to a 401(k) plan, where both you and your employer make contributions into your account. One important difference from a 401(k) plan is that your savings are held in an IRA, which gives you greater flexibility and control over your savings and investments. If your employer offers a SIMPLE IRA plan, you need to set up a SIMPLE IRA to receive contributions under the plan

How to Participate in a SIMPLE IRA Plan

1. Meet the eligibility requirements

Your employer will notify you if it has established a SIMPLE IRA plan and you are eligible to participate. You are generally eligible to make and receive contributions under the plan if you: 

  • earned at least $5,000 in compensation from the employer in any 2 preceding calendar years, and
  • are reasonably expected to earn that much in the current year.
    Your employer may set less restrictive eligibility requirements, including allowing all employees to participate in the plan as soon as they are hired.

 2. Review employer contribution formula

This notice you receive from your employer will inform you as to the type of contribution your employer will make for the year. Your employer is required to make either a matching contribution or a nonelective contribution to the SIMPLE IRAs of all eligible employees each year.

  • If your employer makes a matching contribution – you will only receive the employer contribution if you are saving some of your paychecks in your SIMPLE IRA. Your employer will match your contribution amount dollar-for-dollar up to 3% of your salary. Your employer may choose to reduce the 3% matching contribution to 2% or 1%, but they may only do this for 2 out of every 5 years.
  • If your employer makes a nonelective contribution – you will receive a contribution whether you are saving in your SIMPLE IRA or not. Your employer will deposit a contribution equal to 2% of your salary into your SIMPLE IRA for the year.

3. Decide how much you want to contribute

When you receive notification from your employer about the SIMPLE IRA plan, you will have 60 days to fill out a Salary Reduction Form to tell your employer how much you want to be deducted from your paycheck and put into your SIMPLE IRA. (This form will be included in the notice you receive.) 

For 2019, you can save up to $13,000 in your SIMPLE IRA if you are younger than age 50. If you are age 50 or older, you can save up to $16,000 in your SIMPLE IRA. 

You may choose a dollar amount or percentage of salary for your employer to withhold from each paycheck. This amount is taken out before taxes are calculated on your compensation, so you are not paying tax on the amount you are saving (yet). This means your taxable income is reduced for the year,  which may lower your tax liability for the year. If you change your mind about how much you want to save, you can change your election. You will also get the chance before the start of each year to make or change your election.

4. Open a SIMPLE IRA

Your employer will notify you of the deadline to establish a SIMPLE IRA to receive the first contribution. Your employer may require you to open an IRA with a specific IRA custodian, or you may be allowed to choose your own IRA custodian. If you get to choose, you may need to open the IRA before you complete the Salary Reduction Form so your employer knows where to send your savings. You will need to provide the name and address of your IRA custodian, along with your SIMPLE IRA account number.

How to take money out of a SIMPLE IRA

You can withdraw money from your SIMPLE IRA, including the employer contributions, at any time. The amount you take out will be included in your taxable income in the year you take the withdrawal and may be subject to a 10% early distribution tax if you are not yet age 59½. The 10% early distribution tax rises to 25% for distributions taken within 2 years after the first contribution to your SIMPLE IRA.


You may transfer or roll over your SIMPLE IRA to another SIMPLE IRA tax-free at any time. After 2 years from the date of the first contribution to your SIMPLE IRA, you may also

  • Transfer or roll over your SIMPLE IRA assets to a traditional IRA
  • Roll over assets from other qualified retirement savings arrangements into your SIMPLE IRA
  • Convert your SIMPLE IRA assets to a Roth IRA (a taxable event)

For more information        

To open a SIMPLE IRA with Mainstar Trust, go to our Forms web page and select Savings Incentive Match for Employees (SIMPLE).


If you have questions about SIMPLE IRAs, please contact the Mainstar Trust team at 1-800-521-9897 or