What You Should Know About SIMPLE IRAs in 2025
Written by: Catherine Buck, CFP®
New changes for the SIMPLE IRA are set to take effect in 2025, thanks to SECURE Act 2.0. They include additional catch-up contributions and increased employer contributions (dependent upon the size of the employer). We’ll review the basics behind SIMPLE IRAs, who are eligible employees, and the new adjustments to be aware of starting this year.
SIMPLE IRAs - Summary
SIMPLE IRAs, or Savings Incentive Match Plan for Employees Individual Retirement Accounts, are designed to help small businesses and their employees save for retirement. They are available to companies with 100 or less employees who earned at least $5,000 in compensation during the previous year. Eligible employees are those who have earned at least $5,000 in any two preceding years and are expected to earn at least $5,000 in the current year. Both employers and employees can contribute to SIMPLE IRAs, with employers required to either match employee contributions up to 3% of their salary or make a fixed contribution of 2% of each eligible employee's salary, regardless of whether the employee contributes. This plan provides an accessible retirement savings option with lower administrative costs compared to other retirement plans (like 401k Plans), making it ideal for small businesses.
For 2025, the base employee deferral limit for SIMPLE IRAs is set at $16,500. Individuals aged 50 and above can make an additional catch-up contribution of $3,500, bringing their total potential contribution to $20,000 annually.
New in 2025
- Enhanced Catch-Up Contributions for Ages 60 to 63
A new feature taking effect in 2025 is the "super catch-up" contribution for participants aged 60 to 63 (ages 64+ cannot take advantage of this “super catch-up”.) This allows eligible individuals to contribute an extra $5,250, or 150% of the standard 50+ catch-up contribution limit. Because of this, participants in this age bracket can contribute up to $21,750 annually to their SIMPLE IRAs. (Cost of living adjustments will begin in 2026)
2. Additional 10% Deferral Increase for Small Employers
As with many things amended by SECURE ACT 2.0 the additional deferral increase is difficult to nail down depending on what source material you read. Essentially, employers with 25 or fewer employees are required to implement a mandatory 10% increase in both the standard deferral and catch-up contribution limits. This adjustment raises the standard deferral limit to $17,600 and the catch-up contribution for those aged 50 and above to $3,850. For participants aged 60 to 63, the total contribution limit, including the super catch-up, is $21,750.
Conclusion
The new changes to SIMPLE IRA catch-up contributions in 2025 offer exciting opportunities for individuals, especially those nearing retirement age, to increase their retirement savings. However, as with any new legislation, it will take time to understand the implications and navigate the details. As guidelines and interpretations continue to evolve, staying informed is important to our firm. We are committed to learning and providing updates as more information becomes available. By staying updated we can make the most of these new opportunities for retirement planning.