2017 SIMPLE IRA Contribution Limit
For 2017, the SIMPLE IRA Contribution Limit is $12,500 (Salary reduction limit) and +$3,000 (Catch-up limit, age 50 and over).
Effective 2017-01-01Source: Notice 2016-62 (IRS)Verified 2026-08-29
Compared with 2016
Every figure on this page is unchanged from 2016.
| Item | 2016 | 2017 | Change |
|---|---|---|---|
| Salary reduction limit | $12,500 | $12,500 | +$0 (+0.0%) |
| Catch-up limit, age 50 and over | +$3,000 | +$3,000 | +$0 (+0.0%) |
Who it applies to
Participants in SIMPLE IRA plans established by small employers under IRS rules
What changed this year, and why
For 2017, the SIMPLE IRA salary reduction contribution limit remains unchanged at $12,500. The catch-up contribution limit for participants aged 50 or over is an additional $3,000.
Common questions
- What are the contribution limits for a SIMPLE IRA in 2017?
- For 2017, the SIMPLE IRA salary reduction contribution limit is $12,500. Participants aged 50 or over may contribute an additional $3,000 as a catch-up contribution.
Only employers with 100 or fewer employees
An employer can establish a SIMPLE IRA plan only if it had 100 or fewer employees who received $5,000 or more in compensation during the preceding calendar year. All workers present at any time during that year count toward this test, including leased employees and self-employed individuals who earned income from the business. Employers that already sponsor another qualified retirement plan generally cannot adopt a SIMPLE IRA, with the sole exception of a plan covering collective-bargaining employees. Once a plan is in place, the employer must continue to satisfy the 100-employee threshold on an ongoing basis to keep the arrangement valid. The rule is designed to keep SIMPLE IRAs available for small businesses; a company that grows beyond the limit will eventually have to transition to a different type of qualified plan.
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 (2017), Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans) (IRS)
The $5,000 test that decides who must be let in
An employee must be allowed to participate in a SIMPLE IRA plan if they received at least $5,000 in compensation during any two of the years before the current calendar year and are reasonably expected to earn at least $5,000 in the current year. The definition of employee includes self-employed individuals who received earned income. Employers may adopt less restrictive eligibility rules - for example, by lowering or eliminating the prior-year or current-year compensation thresholds - but they cannot make the requirements stricter. Because the test is based on compensation earned in any two prior years, a worker who was paid $5,000 or more in two separate past years qualifies even if they had gaps in employment or lower pay in intervening years. Once eligible, an employee must be given the opportunity to make salary reduction contributions up to the $12,500 limit, and those who are age 50 or over by year-end may also make catch-up contributions of up to an additional $3,000 if the plan permits.
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 (2017), Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans) (IRS)
A new plan has to be in place by October 1
A SIMPLE IRA plan must be established on or before October 1 of the year it is to take effect, and the latest possible effective date is October 1 itself. This means contributions can be made for the entire calendar year even though the plan was not in place until the last possible day. The rule applies only to employers setting up a SIMPLE IRA for the first time; a new business that comes into existence after October 1 may establish the plan as soon as administratively feasible. However, an employer that previously maintained a SIMPLE IRA plan and wants to start another one can only do so with an effective date of January 1. The October 1 deadline gives small businesses that miss the January 1 start window a full nine months to adopt a plan and still make contributions for the current year. Once adopted, the plan must remain in effect on a calendar-year basis going forward.
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 (2017), Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans) (IRS)
What your employer has to put in
Unless the employer chooses to make nonelective contributions instead, the employer must match each participating employee's salary reduction contributions dollar for dollar, up to 3% of the employee's compensation. Only employees who actually elect to defer salary receive the match; those who choose not to contribute get nothing from the employer under the matching formula. The match percentage can be reduced below 3% in some years, but only if it does not fall below a minimum threshold and certain notice requirements are met. The matching requirement applies to all eligible employees who make salary reduction elections, regardless of how much they choose to defer. Employers who do not want to track individual deferrals can opt for a nonelective contribution alternative instead of the match, which is often simpler to administer. This alternative requires a fixed percentage contribution for all eligible employees whether or not they elect to defer salary.
You are generally required to match each employee's salary reduction contribution(s) on a dol- lar-for-dollar 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 (2017), 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
A SIMPLE IRA plan may, but is not required to, permit catch-up contributions for participants who are age 50 or over at the end of the calendar year. If the plan does allow catch-ups, those contributions are made in addition to regular salary reduction contributions and are not counted against the $12,500 limit. The catch-up contribution limitation for SIMPLE plans is $3,000 for 2017 and 2018. However, the plan document must explicitly permit catch-up contributions; if it does not, even an employee who turns 50 during the year cannot make the extra deferral. An employee who qualifies can defer the full salary reduction limit plus an additional $3,000 catch-up amount. Employers should review their plan documents to confirm whether catch-ups are allowed and communicate the option to employees who reach age 50 by December 31 of the year.
A plan can permit participants who are age 50 or over at the end of the calendar year to make catch-up contributions in addition to elec- tive deferrals and SIMPLE plan salary reduction contributions.
Publication 560 (2017), Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans) (IRS)
Withdrawing in the first two years costs 25%
Early withdrawals from a SIMPLE IRA are generally subject to an additional tax on top of ordinary income tax. However, during the first two years of participation in the plan, that additional tax is increased to 25%. The two-year period begins on the date the employee first participates in any SIMPLE IRA plan maintained by the employer, not on the date the account is opened or the date contributions are made. After the two-year period ends, the additional tax drops back to the standard rate for early distributions from traditional IRAs. Because of this heightened penalty, employees who are within two years of starting participation should be cautious about accessing SIMPLE IRA funds, even for financial emergencies, since the cost of an early withdrawal is significantly higher than from other retirement accounts.
However, the additional tax is increased to 25% if funds are withdrawn within 2 years of beginning participation.
Publication 560 (2017), 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 2016-62 (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.