Major Changes to Simple IRAs in 2024

Short Summary: A SIMPLE IRA is a written plan, funded primarily by tax-deferred employee contributions and partially by employer contributions. Individual accounts are maintained for each employee, no actuarial or qualified plan rules apply, but most employees who have earned at least $5,000 in the current and 2 previous years qualify to participate. The employee may defer up to $16,000 ($17,600 in certain cases) for 2024. The employer generally matches the lesser of the employee’s deferred amount or 3% of the employee’s compensation ($16,000 max match). The plan must be established by October 1st of the year for which a deduction is desired, and the employer’s contribution may be made up to the due date of the return plus extension. All SIMPLE IRA plans must be maintained on a calendar year basis.

Starting in 2024, SECURE 2.0 increases the maximum contribution limits for SIMPLE-IRAs. The new rule allows an employer with 25 or fewer employees to make nonelective employer contributions over and above the required 2% amount, capped at the lesser of 10% of the employee’s compensation or $5,000 (2024, as indexed). Further, under SECURE 2.0, the maximum amount an employee can elect to contribute to the plan is 110% of the normal limit established by the IRS ($17,600 is 110% of $16,000 normally allowed in 2024) if the employer has 25 or fewer employees receiving at least $5,000 in compensation.

Employers with 26 or more employees can take advantage of this increase in the elective contribution limit only if they increase the required 3% matching contribution to 4% or increase the required 2% nonelective contribution to 3%.