Simple Plans | First State Financial Management

Contribution Limits for 2025

Employees can defer up to $16,500; $20,000 if age 50+; $21,750 if age 60-63
Employers match up to 3% of pay or make a 2% nonelective contribution.
Additional non-elective contributions up to 10% of compensation or $5,100
Higher limits available for employers with fewer than 25 employees.

How to Set up a SIMPLE IRA:

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Eligible if you had 100 of fewer employees in 2024 and no other retirement plan.

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Adopt a written plan using IRS Form 5305-SIMPLE or 5304-SIMPLE.

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Provide employees with plan details and election options before each election period.

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Set up individual SIMPLE IRA accounts for eligible employees.

Advantages & Disadvantages

Advantages

Easy set up and minimal paperwork
No complex ERISA compliance or government filings.
Flexible employer contributions and immediate vesting.
Tax-deductible contributions and ROth options available.
Self-employed individuals can participate.

Disadvantages

Employer contributions required annually.
Lower contribution limits compared to 401(k) plans.
Early withdrawals subject to penalties (25% in the first two years, then 10%)
Cannot maintain other employer-sponsored retirement plans.

SIMPLE IRA vs. 401(k) Comparison

Feature	SIMPLE IRA	401(k)
Employee Limit	100 or fewer	Any number
Deferral Limit	$16,500 - $21,750	$23,500 - $34,750
Roth Contributions	Yes	Yes
ERISA Compliance	No	Yes
Employer Contributions	Required	Optional
Loans	No	Yes
Vesting	Immediate	Schedule permitted

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