Saving for Your Retirement: The SIMPLE IRA – Continued

Continued from

Contribution limits: You may contribute up to $12,500 of your profit each year, or up to $15,000 if you are age 50 or older. (These are the 2017 limits.) You don’t have to contribute the maximum in any year.

Deadlines: Unlike any other IRAs, you must establish a SIMPLE IRA at least 90 days before the end of the calendar year (October 1st). The deadline to make a contribution is April 15 of the following year, or up to October 15 if you file a tax extension.

Tax deductability: Contributions to a SIMPLE IRA are tax deductible. When you withdraw money after age 59 1/2, you will owe income tax on both your contributions and your earnings on your investment.

Penalty: There is a more severe early withdrawal penalty for removing money from a SIMPLE IRA before age 59 1/2. The penalty is 25% if you withdraw money in the first two years. (The penalty for all other IRAs is 10%.)


If you set up a SIMPLE IRA for yourself, you may have to make a retirement contribution to your employees’ SIMPLE IRA. This will be required if the employee has earned at least $5,000 in any of the two preceeding years, and if the employee is reasonably expected to earn at least $5,000 in the current tax year.

Therefore, if you have employees, or plan to have employees in the near future, you should consider whether or not a SIMPLE IRA is for you.

One big advantage of the SIMPLE IRA is your ability to contribute more than any other type of IRA, other than a 401(k) plan.

I will discuss other IRA options in future articles: SEP IRA, and the self-employed 401(k) plan.

See also:

The Magic of the Individual Retirement Account

Saving for Your Retirement: The Traditional IRA

Saving for Your Retirement: The Roth IRA

Saving for Your Retirement: The SEP IRA

Tom Copeland –

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Money Management GuideI’ve written much more about IRAs in my book: Family Child Care Money Management and Retirement Guide.

3 replies

  1. Who is best to go through for a simple Ira? I have a Roth currently through fidelity and called my bank about a simple ira and they were confused and unsure how to set it up…

  2. You can do a SIMPLE IRA through Fidelity. I would recommend going through them because they have very low fees. You can simply pick a fund at Fidelity and label it your SIMPLE IRA.

  3. Okay so I just talked with my bank and he said a SEP would be more beneficial….has anything changed? Would you still say simple is best if I dont have employees and dont plan too….he said I can put in for both employer and emplyee with the SEP….so confused- HELP-
    Thanks in advance

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