2020 SIMPLE IRA Contribution Limit
For 2020, the SIMPLE IRA Contribution Limit is $13,500 (Salary reduction limit) and +$3,000 (Catch-up limit, age 50 and over).
Effective 2020-01-01Source: Notice 2019-59 (IRS)Verified 2026-08-29
Compared with 2019
| Item | 2019 | 2020 | Change |
|---|---|---|---|
| Salary reduction limit | $13,000 | $13,500 | +$500 (+3.8%) |
| Catch-up limit, age 50 and over | +$3,000 | +$3,000 | +$0 (+0.0%) |
Who it applies to
Employees eligible to make salary reduction contributions to a SIMPLE IRA plan under IRC § 408(p)
What changed this year, and why
For 2020, the salary reduction limit for SIMPLE IRA plans is $13,500, an increase over the prior year. The catch-up contribution limit for participants aged 50 or over remained unchanged at $3,000.
Common questions
- Can I contribute more if I am 50 or older?
- Individuals aged 50 or over may make an additional catch-up contribution of $3,000 on top of the regular salary reduction limit.
Only employers with 100 or fewer employees
A business 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. This count includes every person employed at any point in that prior year, not just those who qualify to participate. Self-employed individuals who earned income and leased employees are also counted. The 100-employee threshold is checked each year the plan is maintained, but a grace period generally allows a plan to continue for at least two years after the employer exceeds the limit. An employer that already sponsors another qualified retirement plan, except one covering only collective bargaining employees, cannot set up a SIMPLE IRA 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 (2020), Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans) (IRS)
The $5,000 test that decides who must be let in
An employer must include any employee who received at least $5,000 in compensation during any two years before the current calendar year and who is expected to earn at least $5,000 in the current year. The two prior years do not have to be consecutive. Self-employed individuals who received earned income are considered employees for this test. Employers are allowed to make the rules more generous by lowering or dropping the prior-year compensation test, the current-year test, or both, but they cannot make eligibility more restrictive than the $5,000 standard. Any worker who meets the test must be allowed to participate in the plan.
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 (2020), 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 be made effective on any date from January 1 through October 1 of a calendar year, but only if the employer did not previously maintain a SIMPLE IRA plan. An employer that is newly created after October 1 may establish a plan later in the year as long as it is set up as soon as administratively feasible once the business comes into existence. If the employer previously maintained a SIMPLE IRA plan, the new plan can begin only on January 1. The effective date of a SIMPLE IRA plan cannot be 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 (2020), Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans) (IRS)
What your employer has to put in
Under the default matching rule, the employer must match each employee's salary reduction contributions dollar for dollar up to 3% of that employee's compensation. Only employees who choose to defer receive the match. An employer may instead choose to make nonelective contributions for every eligible employee, whether or not the employee defers, which removes the matching requirement entirely. The $13,500 salary reduction limit for 2020 applies separately from the employer contribution. Employees who are age 50 or over may also make catch-up contributions of up to $3,000, which do not count against the 3% matching limit.
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 (2020), 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
Catch-up contributions are available only if the plan itself permits them and the participant is age 50 or over by the end of the calendar year. They are made in addition to regular elective deferrals and SIMPLE plan salary reduction contributions. For 2020, the SIMPLE IRA catch-up limit is $3,000. A participant cannot contribute more than the lesser of the catch-up limit or the amount by which their compensation exceeds their non-catch-up elective deferrals. The regular $13,500 salary reduction limit applies to deferrals that are not catch-up contributions. Employers must review their plan documents to confirm that catch-up contributions are authorized.
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 (2020), Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans) (IRS)
Withdrawing in the first two years costs 25%
Distributions from a SIMPLE IRA taken within the first two years of participation are subject to a heightened additional tax of 25%. This rate is substantially more than the additional early-withdrawal tax that applies once the two-year period has passed. The two-year clock starts on the date the employee first participates in the SIMPLE IRA plan. The 25% rate applies regardless of whether the participant would otherwise qualify for an exception to the usual early-withdrawal penalty. After the first two years of participation have elapsed, early withdrawals revert to the standard additional tax that applies to IRA distributions unless another exception is available.
However, the additional tax is increased to 25% if funds are withdrawn within 2 years of beginning participation.
Publication 560 (2020), 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 2019-59 (IRS)
- Salary reduction limit
The limitation under § 408(p)(2)(E) regarding SIMPLE retirement accounts is increased from $13,000 to $13,500.
- 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.