What is a Simple IRA?

The Savings Incentive Match Plan for Employees (SIMPLE) IRA is designed to help small business owners and their employees access the retirement benefits of a traditional IRA.

Like traditional IRAs, contributions are considered tax-deferred. However, SIMPLE IRAs cannot be set up like a Roth IRA, and SIMPLE IRA holders cannot have any other retirement account.

SIMPLE IRAs are ideal for small business owners under 100 employees who want to give their employees access to a retirement plan.

Employers and employees may even match contributions for a SIMPLE IRA.

Who is Eligible for a Simple IRA?

According to the IRS, any employee who receives at least $5,000 in compensation during any two preceding years (even if they are not consecutive) and is expected to receive at least $5,000 in the upcoming calendar year is eligible to enroll in a Simple IRA.

Additionally, SIMPLE IRA plans are available for small businesses with under 100 employees.

Simple IRA Overview

To understand more about SIMPLE IRAs, let’s explore how they can be utilized and what rules govern their use.


In most cases, opening a Simple IRA is associated with no fees. The entity you choose to open your Simple IRA may charge a maintenance fee. Fortunately, these fees are affordable, and Horizon Trust only carries a single fee for account holders, so they are not drowned out by multiple fees.


The funds placed into your Simple IRA belong to you immediately. This includes the money that your employer matches for each contribution.

However, there are some tax rules you should be aware of.

If you are under 59.5 years old and withdraw funds from your Simple IRA within two years of opening the account, you will face a 25% tax fee. If you are under 59.5 years old and withdraw funds after the two-year window has passed, the tax fee drops to 10%.


In addition to the tax rules we already established, there are also contribution limits associated with a Simple IRA. For the 2024 tax year, people under 50 years of age can invest $16,000, respectively. People over the age of 50 can invest $19,500.


You cannot take out a loan from your Simple IRA. Additionally, there are rules in place that determine when you can withdraw funds and the tax rates on those distributions.

For example, if you take funds out within the first two years and are younger than 59.5 years old, you will face a 25% tax bill on your distribution. After you are 59.5 years old, you will be taxed at the standard tax rate for that tax year.

What Can You Invest in With a Simple IRA?

  • Stocks
  • Bonds
  • CDs
  • Mutual Funds
  • Additional Securities Provided by the IRA Provider

Pros and Cons of a Simple IRA


  • Employer matches can double your wealth
  • Same tax benefits as a traditional IRA
  • Ability to diversify your portfolio
  • Minimal fees


  • No Roth options available
  • Lower contribution limits than a 401(k)
  • Steep withdrawal fees

3 Easy Steps to Open a SIMPLE IRA

  1. Choose a custodian or financial institution to set up your IRA with. Perform due diligence to find a custodian specializing in the assets you want to invest with.
  2. Sign a written Form 5304-SIMPLE or 5305-SIMPLE plan. The former plan allows employees to choose their own financial institution to invest their funds, while the latter is only for plans that limit contributions to an employee-selected firm.
  3. Set up a SIMPLE IRA plan for each of your employees. Decide if you will contribute to the plan or add any other incentives.

Horizon Trust Capital specializes in all types of IRA accounts, including SDIRAsSEP IRAs, individual Roth, traditional plans, and SIMPLE IRAs for small businesses. We can help you set up plans for each employee and advise you on the best financial decisions for your portfolio.

America’s #1 most trusted self-directed custodian




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