Own a Small Business and Looking for a Retirement Plan? SIMPLEs may be Your Best Option

Craig Adams |
Business district in Wyoming, Illinois. Picture by Randy von Lisky.

Article by Chelsea Adams, PhD

There is a strong feeling of freedom and accomplishment that comes from running your own business: you can set your own hours, work on something you are passionate about, and choose the community you serve. But when it comes to retirement savings, your options may feel limited; 401(k) plans are unwieldy in paperwork and IRS reporting for a business owner when they have a small number of employees. Traditional and Roth IRAs are an option, but unlike employee-sponsored plans, are limited in the dollar amount employees can contribute each year. If this sounds like a familiar dilemma, then perhaps a SIMPLE IRA is the retirement plan option for you.

A SIMPLE IRA is a Savings Incentive Match Plan for Employees Individual Retirement Account, and it is meant for businesses with 100 or fewer employees. As of 2022, employees can contribute $14,000 a year to the account, and if an employee is 50 or older, they can make catch-up contributions of $3000 a year. All contributions made to this plan will be tax-deferred, which reduces your taxable income, and the investments can grow tax-deferred as well. Your employees can choose how much a month they want to contribute. Employees are vested immediately, a benefit many 401(k) plans do not offer for employer contributions. Furthermore, employees can self-direct their account, deciding how all contributions will be invested.

As an employer, you can choose how you contribute[1] to your employees’ accounts: matching contributions of up to 3% of the employee’s pay or non-elective contributions of 2% of the employee’s compensation[2]. If an employer chooses the elective option, they only need to contribute to people who are participating in the plan; if they choose the non-elective option, they must contribute to a SIMPLE IRA for every employee regardless of employee participation. It might help to discuss which option is best for your small business with a financial professional before making your decision so it is best for you and your business.

These accounts benefit small business owners in two main ways: on average, plan management cost is lower than the management costs of a 401(k) plan, and employers can deduct their employer contributions from their taxes. It can also make you a more competitive small business to have a retirement plan option. Nearly 72 percent of small business employees have no retirement plan through their company[3]. Having a retirement plan sets your small business apart by showing that you support your employees and consider their futures, which can help you retain existing employees and attract new, quality talent.

Sounding like a good option and wondering if you and your employees qualify for this type of plan? If you and your employees are 21 years old or older, have made at least $5,000 a year for the last two years and expect to earn at least $5,000 during the current plan year, and there are 100 or fewer employees in the business, you qualify for a SIMPLE IRA. Talk to your financial professional today about your options to get started.


[1] Contributions to a SIMPLE IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.

[2] Based on a max salary of $305,000 in 2022.

[3] Information obtained through U.S. Small Business Administration, accessed 4-28-2022: https://www.sba.gov/content/small-business-retirement-plan-availability-and-worker-participation