Glossary
SIMPLE IRA
A SIMPLE IRA is a retirement plan for businesses with 100 or fewer employees in which workers defer salary into their own IRAs and the employer must contribute — either a match of up to 3% of pay or a 2% contribution for all eligible employees.
Employee deferral limits sit between IRA and 401(k) limits, all contributions vest immediately, and administration is far lighter than a 401(k) — no annual testing or Form 5500. Distinctive quirks: withdrawals within the first two years of participation face a steep 25% penalty, and rollovers during that window are restricted.
Why it matters in practice
The SIMPLE occupies the middle ground for small employers: cheaper and easier than a 401(k), with real employer money and higher limits than CalSavers-style auto-IRAs, but without Roth flexibility in many cases, loans, or 401(k)-level limits. Growing firms often start with a SIMPLE and later graduate to a 401(k); the mandatory contribution and mid-year conversion rules reward planning the transition.
In California
Maintaining a SIMPLE IRA exempts an employer from the CalSavers mandate.
Related terms: SEP IRA · 401(k) · IRA (Individual Retirement Account) · CalSavers · Vesting