Take Advantage of SIMPLE-IRA Catch-Up Contributions

If you participate in a SIMPLE-IRA and are age 50 or older, you can make so-called catch-up contributions that are above and beyond what younger participants can contribute. These catch-up contributions are intended to address the fact that many people aren't saving enough for retirement. Here's what you need to know about SIMPLE-IRA catch-up contributions, including some necessary background information.

The Basics

For 2026, you can generally contribute up to the lesser of 1) 100% of your salary or net self-employment income, or 2) $17,000. This is considered an elective deferral contribution made to your SIMPLE-IRA account by you as an employee or self-employed individual.

Then your employer or you (as a self-employed person) can generally make a matching contribution equal to the lesser of 1) 3% of your salary or self-employment income, or 2) the amount of your elective deferral contribution. Alternatively, employers may opt to make a nonelective contribution of 2% of compensation for each eligible employee who has at least $5,000 of annual compensation, regardless of whether the employee makes salary reduction contributions.

Catch-Up Details

For 2026, the standard maximum SIMPLE-IRA catch-up contribution for participants who are age 50 or older as of December 31, 2026, is $4,000. The advantage of making catch-up contributions is that they reduce your taxable salary — or your taxable income if you're self-employed — while also allowing you to put more into your tax-deferred retirement account. In effect, catch-up contributions are deductible in determining your taxable income.

Some plan rules allow catch-up contributions to be made on a Roth (after-tax) basis. However, Roth catch-up contributions won't reduce your current taxable income.

Important: SIMPLE-IRA participants who attain age 60, 61, 62 or 63 in 2026 are eligible for "super" catch-up contributions of $5,250. To be clear, these super catch-up contributions are allowed only if you reach one of those specific ages this year. If you're not in that window, the standard $4,000 catch-up contribution maximum applies.

Putting the Pieces Together

Here's how the pieces fit together, depending on your age:

If you'll reach age 50 to 59 by the end of 2026. The maximum amount you can contribute to a SIMPLE-IRA is $21,000 ($17,000 plus the $4,000 standard catch-up contribution).

If you'll reach age 60 to 63 by the end of 2026. The maximum amount is $22,250 ($17,000 plus the $5,250 super catch-up contribution).

If you'll reach age 64 or older by the end of 2026. The maximum is $21,000 ($17,000 plus the $4,000 standard catch-up contribution).

Higher Contributions If You Work for an Eligible Employer

Under a special rule, higher SIMPLE-IRA contribution limits apply if you work for a company with 25 or fewer employees. Employers with 26 to 100 employees can opt into this special rule if they provide either 1) matching contributions of up to 4% of compensation, or 2) nonelective employer contributions of 3% of each eligible employee's compensation.

Under this special rule, the 2026 contribution limit for an employee who's under age 50 by year end increases to $18,100 (vs. the standard $17,000 limit). For employees who are age 50 to 59 or age 64 or older by year end, the 2026 limit under the special rule is $21,950 ($18,100 plus a $3,850 catch-up contribution). For employees who attain age 60 to 63 by year end in 2026, the limit under the special rule is $23,350 ($18,100 plus a $5,250 catch-up contribution).

How Much Can Catch-Up Contributions Amount To?

Catch-up contributions can make a significant difference in your retirement nest egg. Say you contribute an extra $4,000 starting at age 50 and continuing until age 65 when you retire. If you earn 5% annually on that money, the extra contributions stashed in your SIMPLE-IRA will be worth almost $100,000 when you retire.

If you work for an eligible employer and/or take advantage of super catch-up contributions, you'll have even more. Plus, you'll have lowered your annual tax bills along the way.

Can You Also Contribute to a Traditional or Roth IRA?

Contributing to a SIMPLE-IRA doesn't affect your eligibility to contribute to a traditional or Roth IRA. However, SIMPLE-IRAs are considered employer-sponsored retirement plans. So, the privilege of making deductible contributions to a traditional IRA is subject to a phaseout that applies to participants in tax-favored retirement plans — including SIMPLE-IRAs.

Eligibility to contribute to a Roth IRA is subject to separate income limits. Ask your tax advisor for the details.

Tax-Savvy Move

The catch-up contribution privilege is a tax-savvy move for those with enough cash flow to take advantage. You can lower your tax bill and stash more money in a tax-deferred retirement account. If you have questions or want more information about SIMPLE-IRA catch-up contributions, or this type of retirement plan in general, contact your tax advisor.

Why a SIMPLE-IRA Might Suit Your Small Business

Self-employed individuals can set up SIMPLE-IRAs. So can one-employee corporations and other employers with up to 100 workers.

Say you run your shop as a sole proprietorship or as a single-member limited liability company treated as a sole proprietorship for tax purposes. For 2026, you expect to have $30,000 of net self-employment income. You contribute the maximum $17,000 to your SIMPLE-IRA and claim a $17,000 deduction on your Form 1040. Under these circumstances, you can also make a matching contribution of $900 (3% times $30,000) and deduct another $900 on your federal tax return — for a grand total of $17,900. In contrast, with a SEP-IRA or defined contribution Keogh plan, the maximum deductible contribution to your account would be only $6,000 (20% times $30,000).

Here's an alternate example: You're employed by your own corporation and, for 2026, you'll receive a $30,000 salary. You contribute the maximum $17,000 to your SIMPLE-IRA as an elective deferral contribution. This reduces your taxable salary from $30,000 to $13,000. You then direct your corporation to make a matching deductible employer contribution of $900 (3% times $30,000). So, the elective deferral and employer contributions again add up to $17,900 in tax-saving deductions.

In contrast, the maximum deductible contribution to your account would be only $7,500 (25% times $30,000) if you had a SEP-IRA or profit-sharing plan. And if you'll be age 50 or older as of December 31, 2026, you can make additional SIMPLE-IRA catch-up contributions under the rules explained in the main body of this article.