2018 SIMPLE IRA Contribution Limit
For 2018, the SIMPLE IRA Contribution Limit is $12,500 (Salary reduction limit) and +$3,000 (Catch-up limit, age 50 and over).
Effective 2018-01-01Source: Notice 2017-64 (IRS)Verified 2026-08-29
Compared with 2017
Every figure on this page is unchanged from 2017.
| Item | 2017 | 2018 | 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
Employees participating in a SIMPLE IRA plan (Savings Incentive Match Plan for Employees) established under Section 408(p) of the Internal Revenue Code.
What changed this year, and why
For 2018, the SIMPLE IRA salary reduction contribution limit remained at $12,500, and the catch-up contribution limit for participants aged 50 or over remained at $3,000. These amounts were unchanged from the prior year.
Common questions
- Can employees age 50 or older contribute more to a SIMPLE IRA?
- Yes. Participants aged 50 or over could make an additional $3,000 in catch-up contributions on top of the regular salary reduction limit.
- Did the SIMPLE IRA limits change from 2017 to 2018?
- No. The IRS kept both the salary reduction limit and the catch-up contribution limit at the same levels as in prior years.
Only employers with 100 or fewer employees
To establish a SIMPLE IRA plan, an employer must have had 100 or fewer employees who received at least $5,000 in compensation during the preceding calendar year. This count includes every person employed at any point in that year, whether or not they would qualify to participate, and it covers self-employed individuals with earned income as well as leased employees. Once the plan is in place, the employer must continue to satisfy this headcount test each year. However, a grace period exists: if the employer exceeded 100 employees in a later year after maintaining the plan for at least one year, the employer is still treated as meeting the limit for the two calendar years that follow. The $5,000 compensation threshold used to count employees for eligibility to set up the plan is distinct from the $5,000 test used later to determine which individual employees must be allowed to participate.
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 (2018), 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 that employee received at least $5,000 in compensation during any 2 years preceding the current calendar year and is also expected to receive at least $5,000 during the current year. The employer may not add extra eligibility conditions beyond what the rule sets, such as a minimum number of hours worked. The employer may, however, make the plan more accessible by reducing or eliminating the $5,000 prior-year or current-year thresholds. Self-employed individuals who received earned income count as employees for this test. Note that the salary reduction limit for 2018 is $12,500, and participants age 50 or over may make additional catch-up contributions of up to $3,000 if the plan permits them.
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 (2018), 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 can be set up effective on any date from January 1 through October 1 of a year, provided the employer did not previously maintain a SIMPLE IRA plan. This means a new employer establishing a plan for the first time has until October 1 of that year to put the plan in place. However, this extended deadline does not apply if the employer had previously maintained a SIMPLE IRA plan; in that case, the plan can be effective only on January 1 of a year. An exception exists for employers who come into existence after October 1 of the year they wish to establish the plan. These new employers may set up a SIMPLE IRA plan as soon as administratively feasible after the business comes into existence, even if that date falls after October 1. Additionally, the plan cannot have an effective date earlier than the date the employer actually adopts it.
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 (2018), Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans) (IRS)
What your employer has to put in
Under a SIMPLE IRA plan, the employer is generally required to match each employee's salary reduction contributions on a dollar-for-dollar basis up to 3% of the employee's compensation. Only employees who have elected to make salary reduction contributions will receive the employer match. This matching requirement applies unless the employer chooses to make nonelective contributions instead, which is an alternative option. For example, if an employee earned compensation and chose to defer a portion of salary, the employer would need to contribute up to 3% of that compensation as a matching contribution, provided the employee made an election to defer. The 3% matching limit is a floor, not a ceiling on total contributions; employees may also make their own salary reduction contributions up to the annual limit, and those who are age 50 or over may make additional catch-up contributions of $3,000 if the plan permits. This ensures that participating employees receive meaningful employer support toward their retirement savings.
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 (2018), 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 can 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 elective deferrals and SIMPLE plan salary reduction contributions. The catch-up contribution limitation for SIMPLE plans is $3,000 for 2018 and 2019. This means eligible participants can contribute beyond the regular salary reduction limit of $12,500 if the plan allows it. However, the catch-up is not automatic. The employee must have reached age 50 by the end of the calendar year, and the plan itself must permit these additional contributions. The catch-up contribution for a year cannot exceed the lesser of the catch-up limit or the excess of the participant's compensation over elective deferrals that are not catch-up contributions. This provision allows older workers to make up for lost retirement savings as they approach retirement age, but it requires both individual eligibility and plan authorization to take effect.
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 (2018), 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 a 10% additional tax. However, during the first 2 years of participation in the plan, this additional tax is increased to 25% if funds are withdrawn. This means that if an employee takes a distribution within the first 2 years of beginning participation in the SIMPLE IRA plan, the penalty is significantly higher than the standard early withdrawal penalty. The 2-year period begins when the employee first starts participating in the plan, not when the plan itself is established. After this 2-year period ends, the penalty reverts to the standard additional tax for early withdrawals. This heightened penalty during the initial participation period is designed to encourage employees to leave their retirement savings in the plan during the critical early years when the plan is being established and contributions are building up.
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 (2018), 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 2017-64 (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.