2021 SIMPLE IRA Contribution Limit
For 2021, the SIMPLE IRA Contribution Limit is $13,500 (Salary reduction limit) and +$3,000 (Catch-up limit, age 50 and over).
Effective 2021-01-01Source: Notice 2020-79 (IRS)Verified 2026-08-29
Compared with 2020
Every figure on this page is unchanged from 2020.
| Item | 2020 | 2021 | Change |
|---|---|---|---|
| Salary reduction limit | $13,500 | $13,500 | +$0 (+0.0%) |
| Catch-up limit, age 50 and over | +$3,000 | +$3,000 | +$0 (+0.0%) |
Who it applies to
Employees who participate in a SIMPLE IRA plan and elect salary reduction contributions
What changed this year, and why
For 2021, the SIMPLE IRA salary reduction contribution limit remains unchanged at $13,500, and the catch-up contribution limit for participants age 50 or over remains unchanged at $3,000. These are the same amounts as for 2020.
Common questions
- How much can an employee contribute to a SIMPLE IRA in 2021?
- For 2021, the SIMPLE IRA salary reduction contribution limit is $13,500. Eligible participants who are age 50 or older by the end of the year may contribute an additional $3,000 as a catch-up contribution.
Only employers with 100 or fewer employees
An employer can only establish a SIMPLE IRA plan if it had 100 or fewer employees who received $5,000 or more in compensation during the preceding calendar year. When counting employees for this test, the employer must include every person who worked at any time during that year, even if they would not have been eligible to participate in the plan itself. Self-employed individuals who received earned income and leased employees are also counted. The employer must also not maintain another qualified retirement plan, unless that other plan covers only collective bargaining employees. Once a SIMPLE IRA plan is in place, the employer must continue to satisfy the 100-employee limit each year it maintains the plan, though a grace period applies for employers that grow beyond the limit after the first year.
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 (2021), 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 years before the current calendar year and are reasonably expected to receive at least $5,000 in the current year. The employer may not impose any additional conditions for participation, such as requiring a minimum number of hours worked or a minimum age. The employer may, however, use less restrictive eligibility requirements by reducing or eliminating either the prior-year or current-year compensation threshold. The term "employee" includes a self-employed individual who received earned income. Once an employee meets this test, they must be given the opportunity to make salary reduction contributions, and the employer must make the corresponding matching or nonelective contribution on their behalf.
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 (2021), 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 that has not previously been maintained can be made effective on any date from January 1 through October 1 of a calendar year. The plan cannot have an effective date that is earlier than the date it is actually adopted. An employer that misses the October 1 deadline for a given year must wait until January 1 of the following year to establish a plan. There is one exception: a new employer that comes into existence after October 1 of a year may set up a SIMPLE IRA plan as soon as administratively feasible after the business begins, even if that effective date falls after October 1. If the employer previously maintained a SIMPLE IRA plan, the new plan can be made effective only on January 1 of a year.
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 (2021), Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans) (IRS)
What your employer has to put in
The default employer contribution for a SIMPLE IRA plan is a dollar-for-dollar match of each employee's salary reduction contribution, limited to 3% of the employee's compensation. Only employees who have actually elected to defer pay receive the match; those who do not contribute are not owed a matching amount. An employer may instead elect to make a non-elective contribution for all eligible employees regardless of whether they defer, in which case the matching requirement does not apply. But if the matching method is chosen the 3% ceiling is the required level of match. This matching obligation is separate from the $13,500 annual salary reduction limit and the additional $3,000 catch-up limit available to participants age 50 or over.
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 (2021), 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 not automatic; two conditions must be met. First, the participant must be age 50 or over at the end of the calendar year. Second, the SIMPLE IRA plan must expressly permit catch-up contributions. When both conditions are satisfied, the participant may contribute an additional amount above the regular salary reduction limit. For 2021, the catch-up contribution limitation for SIMPLE plans is $3,000. A participant's catch-up contributions for the year cannot exceed the lesser of the catch-up limit or the excess of the participant's compensation over their elective deferrals that are not catch-up contributions. The regular salary reduction limit for 2021 is $13,500; catch-up contributions are made in addition to that amount.
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 (2021), Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans) (IRS)
Withdrawing in the first two years costs 25%
Distributions from a SIMPLE IRA that are treated as early withdrawals are generally subject to an additional tax. However, during the first 2 years of participation in the plan, this additional tax is increased to 25%. The two-year period begins on the date the employer first makes a contribution to the employee's SIMPLE IRA. After the 2-year participation period has passed, the additional tax drops back to the standard level that applies to early IRA withdrawals generally. Because of this heightened penalty, employees who are considering a distribution within the first 2 years of participation should understand that the cost of withdrawing early is significantly greater than it would be from a traditional IRA once the same two-year window has elapsed.
the additional tax is increased to 25% if funds are withdrawn within 2 years of beginning participation.
Publication 560 (2021), 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 2020-79 (IRS)
- Salary reduction limit
The limitation under § 408(p)(2)(E) regarding SIMPLE retirement accounts remains unchanged at $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.