There are a lot of similarities between SIMPLE IRAs and Traditional IRAs. In fact, they follow the same investment, distribution, and rollover rules. But, SIMPLE doesn't mean easy, it's actually short for Savings Incentive Match Plan for Employees. SIMPLE IRAs are company-sponsored retirement accounts where both the employer and employee make contributions to the account while individuals alone are completely responsible for Traditional IRAs. That is probably the most important difference. The primary differences SIMPLE IRA
sponsored by an employer - Just like a 401k, your employer would need to provide the option.
salary reduction contributions - your paycheck is debited and taxes are reduced automatically.
employer contributions - Your employer can contribute either 2% non-elective or 3% matching contributions.
High contribution limit - $12,500 ($15,500 is age 50 or over) Annual contribution limit
No income limitations for tax deductibility
No upper age limit to contributions - At age 70 1/2 you have to start taking your required minimum distribution (RMD) but if you are still working you can continue to make your contributions too.
Opened by an individual - you have to open your own account
Direct contribution only - You need to deposit your contributions into your own account and you need to claim contributions on your tax return in order to determine deductibility
No employer contributions - You are completely responsible for funding your account.
Lower contribution limits - $5,500 ($6.500 if age 50 or over) annual contribution limit.
Income tests for deductibility - If you or your spouse are covered by a retirement plan at work there are income limits to the deductibility.
WalletHub Answers is a free service that helps consumers access financial information. Information on WalletHub Answers is provided “as is” and should not be considered financial, legal or investment advice. WalletHub is not a financial advisor, law firm, “lawyer referral service,” or a substitute for a financial advisor, attorney, or law firm. You may want to hire a professional before making any decision. WalletHub does not endorse any particular contributors and cannot guarantee the quality or reliability of any information posted. The helpfulness of a financial advisor's answer is not indicative of future advisor performance.
WalletHub members have a wealth of knowledge to share, and we encourage everyone to do so while respecting our content guidelines. Please keep in mind that editorial and user-generated content on this page is not reviewed or otherwise endorsed by any financial institution. In addition, it is not a financial institution’s responsibility to ensure all posts and questions are answered.
Ad Disclosure: Certain offers that appear on this site originate from paying advertisers, and this will be noted on an offer’s details page using the designation "Sponsored", where applicable. Advertising may impact how and where products appear on this site (including, for example, the order in which they appear). At WalletHub we try to present a wide array of offers, but our offers do not represent all financial services companies or products.