2016 SIMPLE IRA Contribution Limit
For 2016, the SIMPLE IRA Contribution Limit is $12,500 (Salary reduction limit) and +$3,000 (Catch-up limit, age 50 and over).
Effective 2016-01-01Source: Notice 2015-75 (IRS)Verified 2026-09-01
Who it applies to
Employees who participate in a SIMPLE IRA plan under section 408(p) of the Internal Revenue Code.
What changed this year, and why
For 2016, the salary reduction contribution limit for SIMPLE IRAs under section 408(p)(2)(E) remains unchanged at $12,500. The catch-up contribution limit for participants age 50 or over remains unchanged at $3,000.
Common questions
- How much can I contribute to a SIMPLE IRA in 2016?
- The salary reduction limit for SIMPLE IRA contributions in 2016 is $12,500. An employee age 50 or over may contribute an additional $3,000 as a catch-up contribution, bringing the total higher.
- Is the catch-up contribution included in the $12,500 limit?
- No. The $3,000 catch-up contribution is in addition to the $12,500 salary reduction limit.
Only employers with 100 or fewer employees
To establish a SIMPLE IRA plan, an employer must have had 100 or fewer employees who earned $5,000 or more in compensation during the preceding calendar year. This count includes every worker on the payroll at any point during that year, even those who did not meet the plan's eligibility threshold. Self-employed individuals with earned income and leased employees are also tallied. Once the plan is in place, the employer must continue to satisfy the 100-employee test each year it maintains the plan, though a grace period exists for employers who briefly exceed the limit. An employer that already sponsors another qualified retirement plan generally cannot offer a SIMPLE IRA, unless the other plan covers only collective bargaining employees.
You can set up a SIMPLE IRA plan only if you had 100 or fewer employees who received $5,000 or more in compensation from you for the preceding year.
Publication 560 (2016), Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans) (IRS)
The $5,000 test that decides who must be let in
For 2016, a SIMPLE IRA plan must allow any employee to participate if that employee received at least $5,000 in compensation during any 2 years before the current calendar year and is reasonably expected to receive at least $5,000 in the current year. An employer may use less restrictive eligibility rules, such as lower compensation thresholds, but may not make the rules more restrictive than the $5,000 standard. The term employee includes a self-employed individual who received earned income.
Eligible employee. Any employee who re ceived at least $5,000 in compensation during any 2 years preceding the current calendar year and is reasonably expected to receive at least $5,000 during the current calendar year is eligi ble to participate.
Publication 560 (2016), Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans) (IRS)
A new plan has to be in place by October 1
A new SIMPLE IRA plan can take effect on any date from January 1 through October 1 of the year, but only if the employer has never previously maintained a SIMPLE IRA plan. If the employer had a SIMPLE IRA plan in an earlier year, the new plan can be effective only on January 1. A brand-new employer that comes into existence after October 1 may still establish a plan as soon as administratively feasible. In every case, the plan's effective date cannot precede the date the employer actually adopts it. A business that misses the October 1 window for a first-year plan must wait until the following January to begin.
You can set up a SIMPLE IRA plan effective on any date from January 1 through October 1 of a year, provided you didn't previously maintain a SIMPLE IRA plan.
Publication 560 (2016), Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans) (IRS)
What your employer has to put in
For 2016, a SIMPLE IRA employer is generally required to match each employee's salary reduction contributions dollar for dollar up to 3% of the employee's compensation. Only employees who have elected to make their own salary reduction contributions receive this employer match. This matching requirement does not apply if the employer instead chooses to make nonelective contributions for all eligible employees.
You are generally required to match each employee's salary reduction contribution(s) on a dol larfordollar basis up to 3% of the employee's compensation, where only employees who have elected to make contributions will receive an employer matching contribution.
Publication 560 (2016), Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans) (IRS)
The catch-up is not automatic: age 50 by year end, and the plan must allow it
For 2016, a SIMPLE IRA plan may permit participants who are age 50 or over at the end of the calendar year to make catch-up contributions in addition to their regular salary reduction contributions. The catch-up contribution limit for SIMPLE plans is $3,000 for 2016. However, catch-up contributions are not automatic: the plan must specifically permit them, and the participant must be age 50 or over by the end of the year.
A plan can permit participants who are age 50 or over at the end of the calendar year to make catchup contributions in addition to elec tive deferrals and SIMPLE plan salary reduction contributions.
Publication 560 (2016), Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans) (IRS)
Withdrawing in the first two years costs 25%
For 2016, early withdrawals from a SIMPLE IRA are generally subject to a 10% additional tax. However, if funds are withdrawn within 2 years of beginning participation in the SIMPLE IRA plan, the additional tax is increased to 25%. This heightened penalty applies only during the first 2 years of participation; after that period, the standard 10% additional tax applies to early withdrawals.
Early withdrawals generally are subject to a 10% additional tax. However, the additional tax is increased to 25% if funds are withdrawn within 2 years of beginning participation.
Publication 560 (2016), Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans) (IRS)
How each figure was verified
Each number below was read from a stored copy of the document named beside it, and checked to occur word for word in the quoted sentence. The digest is of that stored text.
Notice 2015-75 (IRS)
- Salary reduction limit
The limitation under § 408(p)(2)(E) regarding SIMPLE retirement accounts remains unchanged at $12,500.
- Catch-up limit, age 50 and over
The dollar limitation under § 414(v)(2)(B)(ii) for catch-up contributions to an applicable employer plan described in § 401(k)(11) or 408(p) for individuals aged 50 or over remains unchanged at $3,000.