Free SIMPLE IRA Calculator & Contribution Limits
How to Read Your SIMPLE IRA Calculator Results
Some rules of thumb for reading the SIMPLE IRA contribution calculator results include:
- Annual SIMPLE IRA Contributions: SIMPLE IRA contributions should be at least 3 percent of annual compensation or $5,000. If they’re more than $20,000, or 8 percent to 10 percent of your employee income, it may be better to use a SEP IRA. If you’re a small business owner with employees, consider using a 401(k) instead.
- Mandatory Employer Matching: Employer matching will probably equal your employee contributions. For most employees, matching will equal between $1,000 and $3,000, but if your contributions are high or you have a high income, your matching may be lower.
- Five-Year Growth Projection Rule of Thumb: Your SIMPLE IRA balance should grow faster each year as interest accumulates with new contributions. If your contributions are high, your account balance may be as high as current annual compensation.
SIMPLE IRA Contribution Limits
Using a SIMPLE IRA, employees can use salary deferrals for pretax contributions up to $13,000. Employers offering SIMPLE IRAs are required to match 100 percent of employee deferrals up to at least 3 percent of their compensation or $13,000. Total SIMPLE IRA contribution limits for 2019 are $26,000 between employee deferrals and employer matching.
SIMPLE IRA contribution limits include:
- Employee Deferrals: up to $13,900 annually
Employees can make tax-deferred contributions to SIMPLE IRAs by deferring up to 100 percent of their income or $13,000, whichever is less.
- Employer Matching: up to $13,000 annually
Using a SIMPLE IRA, employers are required to match employee contributions up to 3 percent of annual compensation. Employers can match more than 3 percent, but must match employee deferrals at least up to 3 percent of annual compensation.
- Catch-up Contributions: up to $3,000 annually
Account holders over 50 years old can contribute an extra $3,000 to their SIMPLE IRA each year until they are 70½ years old.
SIMPLE IRA Deadlines
There are several SIMPLE IRA deadlines for employers to implement a plan or for employees to participate. Using a SIMPLE IRA, employers must set up their plan between January 1st and October 1st of the year they take effect. Employees who participate must contribute between January 1st and December 31st (prior year contributions are not allowed).
SIMPLE IRA deadlines for employees include:
- Employee Deferral Deadline: December 31
Employees who participate in a SIMPLE IRA must make all their contributions before the end of the year.
Some SIMPLE IRA deadlines for employers include:
- SIMPLE IRA Formation Deadline: October 1
Employers who want to use a SIMPLE IRA must set up their plan before October 1st of the year it takes effect. If you are establishing a SIMPLE IRA for a company formed after October 1st, the SIMPLE must be established as early as is practicable.
- Employer Matching Contribution Deadline: 30 days after employee deferral
Using a SIMPLE IRA, employers must match employee deferrals up to 3 percent of annual compensation. All employer matching contributions must be made within 30 days of the employee deferral being matched.
If a SIMPLE IRA isn’t the right retirement plan for you, consider investing in a 401(k) plan instead. See our in-depth breakdown of top 401(k) providers to learn more.
How the SIMPLE IRA Calculator Works
The SIMPLE IRA calculator is used to calculate annual contributions and mandatory employee matching. The calculator bases these numbers on your annual compensation and deferral percentage, and also gives you the option of doing the same calculation for employees.
The calculator also caps at SIMPLE IRA contribution limits of $13,000 from deferrals and another $13,000 in matching. However, your individual results may vary if your employer matches more than 3 percent in your SIMPLE IRA. The SIMPLE IRA contributions calculator above, however, provides results based on mandatory minimum employer matching of 3 percent.
SIMPLE IRA Calculator Inputs
To get results from the SIMPLE IRA calculator, users have to provide annual compensation and a deferral percentage. Employers can also input compensation information for their employees if they have any. These factors are then used to calculate SIMPLE IRA contributions and employer matching based on SIMPLE IRA rules.
Inputs that employers can enter into the SIMPLE IRA contributions calculator above include:
1. Annual Employer Compensation
Annual compensation the biggest factor in determining mandatory employer matching contributions to your SIMPLE IRA. Using a SIMPLE IRA, employers are required to match employee deferrals up to 3 percent of annual compensation. Your employer may match more than 3 percent, but the calculator determines mandatory minimum employer matching.
2. SIMPLE IRA Deferral Percentage
If you have a SIMPLE IRA at work, you can contribute as much of your income as possible up to $13,000, but your employer is only required to match contributions up to 3 percent unless they choose to match more. Employers can also cut their match to as little as 1 percent, but not for more than two years in a five-year period.
3. Plan Participant Compensation & Deferral Rates
In addition to inputting your own information, you can also input information for up to three employees. Using employee compensation and deferral percentage, you can use the SIMPLE IRA calculator to determine their maximum SIMPLE IRA contribution and mandatory employer matching.
SIMPLE IRA Calculator Outputs
Based on the information you enter into the SIMPLE IRA contributions calculator above, the calculator determines your SIMPLE IRA contribution, which is capped at $13,000. The calculator also calculates your mandatory employer matching, which is limited to $13,000 or 3 percent of annual compensation. Lastly, the calculator shows how your account is projected to grow.
The employee outputs for the SIMPLE IRA calculator above are:
1. Annual Employee SIMPLE IRA Contribution
The most significant calculation provided by the SIMPLE IRA calculator above is your annual SIMPLE IRA contribution. This calculation is done by multiplying your SIMPLE IRA deferral percentage by your annual compensation. Using a SIMPLE IRA, employers must match employee deferrals but the IRS limits SIMPLE IRA contributions to $13,000 per year.
2. SIMPLE IRA Mandatory Employer Matching
After the SIMPLE IRA calculator determines your annual SIMPLE IRA contributions, the calculator uses this information to provide the matching that employers are required to provide. This figure is equal to your annual SIMPLE IRA contributions up to 3 percent of your compensation or $13,000—whichever is less. Your employer may match more, but the calculator shows the minimum.
3. SIMPLE IRA 5-Year Projected Growth
The last output that the SIMPLE IRA calculator above supplies is a projection of how much your SIMPLE IRA account will grow over five years. This projection is based on five years of the same annual contributions and the same employer matching, along with an annual return of 5 percent.
The employer output for the SIMPLE IRA calculator above is:
1. Mandatory Employer Matching for Employees
If you indicate that you have employees, the SIMPLE IRA calculator will allow you to enter information for up to three employees. By providing their annual compensation and deferral percentages, you can calculate your mandatory employer matching for up to three employees based on employer matching requirements.
SIMPLE IRA Calculator Example
For an example of how the SIMPLE IRA calculator works, consider Chad, an accountant for a manufacturing company. Chad’s company is small and has set up a SIMPLE IRA to provide retirement benefits for employees. Chad’s total annual compensation is $100,000, and he plans to defer 2 percent of his salary into his SIMPLE IRA.
Using the SIMPLE IRA calculator above, Chad can determine how much he’ll contribute based on a deferral percentage as well as how much his employer is required to match. Chad’s employer may match contributions greater than 3 percent of employee compensation, but is required to match employee deferrals up to 3 percent.
SIMPLE IRA Contribution Limits
Based on Chad’s total annual compensation, Chad’s contributions to his SIMPLE IRA will total $2,000 for the year—2 percent of his $100,000 in compensation. His employer will also be required to match the $2,000 contribution unless they’ve temporarily cut their matching to as little as 1 percent.
Assuming that Chad continues to make the same SIMPLE IRA contributions each year with the same employer matching and an average annual return of 5 percent, Chad’s SIMPLE IRA will grow over the next five years from $4,000 to over $27,000.
SIMPLE IRA Contribution Employee Example
Let’s assume now that Chad decides to raise his deferral percentage to 4 percent and his employer wants to determine how much they’ll need to contribute to Chad’s account. Using the SIMPLE IRA contribution calculator above, Chad can see that his mandatory employer matching will increase to $3,000 from $2,000.
Using this calculator, Chad can also help his coworkers determine how much their mandatory minimum employer matching will be based on their respective salaries and deferral percentages.
SIMPLE IRA Total Contributions
Using a SIMPLE IRA, an employer can choose to match 100 percent of employee deferrals of more than 3 percent. However, in order to be compliant, the employer must at least match employee deferrals up to 3 percent of their compensation. An employer can drop their match below 3 percent—to as low as 1 percent—but not for more than two years in a five-year period.
What Is a SIMPLE IRA
A SIMPLE IRA, or Savings Incentive Match Plan for Employees, is a retirement benefit plan that small business owners can set up to reward employee savings by matching their contributions. Using a SIMPLE IRA, employees can make up to $13,000 in pretax contributions. Employers are required to match employee contributions up to 3 percent of employee compensation.
Using a SIMPLE IRA, employees make pretax contributions to their account by deferring part of their salaries. Employees get to choose how much they defer, but are limited to $13,000 in contributions each year. Business owners then match employee contributions within 30 days. Employers can match employee contributions above 3 percent of compensation and can also cut their match to as low as 1 percent, but not more than twice in a five-year period.
If you have a small business and are thinking about setting up a SIMPLE IRA, it’s important to understand the contribution limits, rules, and deadlines. You can learn more about how SIMPLE IRAs work and how to use them by reading our ultimate guide to SIMPLE IRAs.
When Employers Should Use a SIMPLE IRA
A SIMPLE IRA is ideal for small business owners who have several employees and want to incentivize their saving through matching contributions. SIMPLE IRAs are very similar to 401(k) plans but are much more cost-effective to administer. Using a SIMPLE IRA, employers only have to match contributions from those employees who participate.
Some cases where a SIMPLE IRA is particularly beneficial include:
- Businesses with under a dozen employees – If your small business has four to 14 employees, it’s probably too big for a SEP IRA but too small to be worth the cost of administering a 401(k).
- Growing companies – Businesses that are still growing probably don’t have profit-sharing contributions because profits are still being reinvested. Matching employee contributions in a SIMPLE IRA can be a great retirement benefit plan.
- Business with high employee turnover – Business owners can make their own contributions to a SIMPLE IRA and are only required to match contributions for employees who participate.
The SIMPLE IRA calculator above is a great tool for employees who have access to a SIMPLE IRA at work and want to know how much they’re set to contribute each year. The calculator can also tell them how much to expect in employer matching contributions and how quickly their account should grow over five years based on their contributions and match.
In addition to these benefits for employees, the SIMPLE IRA calculator above is ideal for employers who want to determine how much they may be required to contribute to employee accounts. Using the calculator above, employers can calculate their required employer matching contributions for multiple employees based on annual compensation and deferral rates.
What’s Not Included in the SIMPLE IRA Calculator
The SIMPLE IRA calculator above is very useful but also excludes several factors. For example, this calculator bases results on the mandatory minimum employer matching—it doesn’t consider if your employer matches contributions in excess of 3 percent of annual employee compensation.
In addition, the calculator above doesn’t account for employers who periodically cut their SIMPLE IRA matching to as little as 1 percent. The calculator doesn’t account for catch-up contributions that are allowed for account holders over 50 years old. Lastly, the calculator doesn’t indicate whether another type of account may be a better option for you or allow for higher contributions.
Pros & Cons of a SIMPLE IRA
When thinking about a SIMPLE IRA for a small business, there are several pros and cons for small business owners to consider. SIMPLE IRA contribution limits are much higher than Traditional IRAs. While contribution limits aren’t as high as 401(k)s, SIMPLE IRAs are much more cost-effective.
Using a SIMPLE IRA, employees are able to make up to $13,000 in pretax contributions. While SIMPLE IRA account holders can’t withdraw money without penalty until age 59½, they also pay no taxes until they take withdrawals. What’s more, employees who use a SIMPLE IRA are guaranteed employer matching of 100 percent of employee contributions up to at least 3 percent of their annual compensation.
SIMPLE IRA Pros
There are many benefits to using a SIMPLE IRA for small business owners who want to encourage employee deferrals without the cost of a 401(k) plan. Employees aren’t required to participate in a SIMPLE IRA, but those that do can contribute up to 100 percent of their income or $13,000.
Some SIMPLE IRA pros include:
- Incentivize employee saving – Using a SIMPLE IRA, employers must match employee deferrals up to 3 percent of total employee compensation.
- No minimum deferrals – Employees aren’t required to participate in a SIMPLE IRA if they don’t want to.
- Low-cost plan – SIMPLE IRAs are structured very similarly to a 401(k) but don’t have the administrative costs.
- Flexible investment options – Account holders can invest in many different things through an IRA. If you ever leave your company, it’s easy to use your account to set up a self-directed IRA.
SIMPLE IRA Cons
While SIMPLE IRAs have many distinct advantages, there are also several drawbacks to these plans that employers should consider before implementing one for their small business. The biggest disadvantage is that employers who use a SIMPLE IRA are required to match employee deferrals. The contribution limits also aren’t as high as a 401(k).
SIMPLE IRA cons include:
- Mandatory employer matching – Using a SIMPLE IRA, employers are required to match employee deferrals up to at least 3 percent of employee compensation. Employers can match more than 3 percent and they can also cut their match to as low as 1 percent—but not for more than two years in a five-year period
- Mediocre contribution limits – SIMPLE IRA contribution limits are $13,000, which is higher than the $6,000 allowed for a Traditional IRA but still lower than a 401(k).
- Can’t borrow against – Unlike a 401(k), you can’t borrow against IRAs including a SIMPLE IRA.
SIMPLE IRA Alternatives
If you work at a company, you don’t decide whether you have access to a SIMPLE IRA. Your employer decides whether to offer a SIMPLE and you decide to participate or not. However, there are also accounts that you can use in addition to a SIMPLE. There are also other accounts that business owners can choose to offer instead of a SIMPLE.
Three of the most common SIMPLE IRA alternatives are:
1. SEP IRA
A SEP IRA is an employer-sponsored retirement plan that allows tax-free contributions up to 25 percent of employer income or $56,000, whichever is less. Using a SEP, employers choose whether to contribute to their account each year. However, whenever employers contribute to their own account, they’re required to make contributions for employees that are proportional to their own contributions based on annual compensation.
SEP IRAs have extremely high contribution limits, making them ideal for businesses with high profitability. However, because a SEP IRA requires employers to fund contributions for their employees in addition to themselves, these plans are better for self-employed individuals and businesses with about five employees or fewer. For more information, be sure to check out our ultimate guide to SEP IRAs.
2. Traditional IRA
A Traditional IRA is a very simple and straightforward retirement account. Traditional IRAs aren’t set up by employers. Instead, anyone who’s eligible for a Traditional IRA can set one up. Using a Traditional IRA, investors can contribute up to $6,000 pretax.
A Traditional IRA is a great account for freelancers and independent business people who don’t have a lot of revenue. The contribution limits for Traditional IRAs are very low, but account holders can make contributions whenever they choose and businesses don’t have to make contributions for employees.
A 401(k) plan is the gold standard in employer-sponsored retirement benefit plans. Using a 401(k), employees can make up to $19,000 in pretax contributions to their account through salary deferrals. Employers then have the option of matching these contributions, but can adjust their match as necessary.
401(k) plans are ideal for companies that have 15 to 18 employees or more. Using a 401(k), these businesses can facilitate employee saving and give employers the option of matching employee contributions or even provide profit-sharing contributions up to $18,000.
For a low-cost, full-featured 401(k) plan that is able to grow as you do, consider ShareBuilder 401k. Their advisors and customer success managers will help you determine the right plan design, conduct employee education, and answer all your 401(k) questions. The one-time setup fee is $750 and administration costs start at just $100 per month. Get started at ShareBuilder 401k.
A SIMPLE IRA is a great account for small business owners who want to provide retirement benefits that incentivize employee saving. Using the SIMPLE IRA calculator above, you can see how much you’ll contribute to a SIMPLE IRA during a year, the mandatory minimum employer matching, and how fast your account will grow over five years.
If you’re a small business owner and you think a SIMPLE IRA may be a good option for your company, you should read more about the process of setting up a plan.