SIMPLE IRA
A small-business retirement plan with employee deferrals and a mandatory employer contribution.
A SIMPLE IRA (Savings Incentive Match Plan for Employees) is designed for businesses with 100 or fewer employees. Employees defer part of their pay, and the employer must contribute either a match up to a small percentage of compensation or a flat contribution for everyone who is eligible, whether or not they defer.
Elective deferral limits are lower than a 401(k), which is the main trade for its lighter administration and lower cost to run. The mandatory employer contribution is the other side of that trade: it is not optional in a lean year, which is the usual reason a growing business eventually moves to a 401(k).
One rule catches people out. Withdrawals taken within the first two years of participating face a 25% penalty rather than the usual 10%, and rolling into a non-SIMPLE account during that window can trigger it. Wait out the two years before consolidating.
This definition is general information to help you understand a term, not financial, tax, or legal advice. Figures that change year to year (limits, thresholds, rates) should be confirmed against current official sources. For guidance on your situation, a licensed fee-only fiduciary is the right next step.