SIMPLE IRA Eligibility Rules: Who Qualifies in 2026 (Employers, Employees and Owners)

SIMPLE IRA eligibility rules come down to two tests: the business needs 100 or fewer employees earning $5,000 or more, and each worker must earn $5,000 in any two prior years.

A business can offer a SIMPLE IRA if it had 100 or fewer employees earning $5,000 or more last year and maintains no other retirement plan. An employee must be allowed in after earning $5,000 from that employer in any 2 prior calendar years and expecting $5,000 this year. Age and hours requirements are not permitted.

By Craig Wear, CFP® | Last reviewed: October 9, 2026

Who is eligible to set up a SIMPLE IRA plan?

Any employer with 100 or fewer employees who received $5,000 or more in compensation for the preceding year can set up a SIMPLE IRA, provided it maintains no other retirement plan. That includes sole proprietors, partnerships, corporations, tax-exempt organizations and governmental entities, according to the IRS SIMPLE IRA FAQs.

The count is broader than many owners expect. Publication 560 says the employer must “take into account all employees employed at any time during the calendar year regardless of whether they are eligible to participate,” and the count includes self-employed individuals with earned income and leased employees. A seasonal worker who earned $6,000 and left in August still counts.

Related businesses in a controlled group are tested together, so an owner cannot cover one company and ignore eligible workers in another.

Growth does not force an immediate shutdown. A plan maintained for at least 1 year keeps qualifying for the 2 calendar years after the last year the employer met the limit, and a separate grace period covers acquisitions and dispositions.

What is the SIMPLE IRA exclusive plan rule?

A SIMPLE IRA generally must be the only retirement plan the employer contributes to for any year it is in effect. The IRS FAQs say an employer “can’t contribute to a SIMPLE IRA plan for a calendar year if you maintain another retirement plan and any of your employees receives an allocation or accrues a benefit under the other plan during that calendar year.”

The two exceptions are a separate plan covering only collectively bargained employees (whom the SIMPLE IRA then excludes) and the acquisition grace period described above.

The rule is about the employer, not the employee. A worker covered by a SIMPLE IRA at one job can also defer into a 401(k) at a second, unrelated job. All deferrals across employers still share one $24,500 limit for 2026, the trap explained in can you have two 401(k) accounts.

SECURE 2.0 created one escape hatch. Under section 332, for plan years beginning after 2023, an employer may terminate a SIMPLE IRA midyear if it replaces it with a safe harbor 401(k), giving employees at least 30 days’ notice (IRS Notice 2024-2, Q&A G-3). Owners weighing that switch can compare the two designs in SIMPLE IRA vs 401(k).

Which employees must be allowed to participate?

Every employee who received at least $5,000 in compensation from the employer during any 2 preceding calendar years, and who is reasonably expected to receive at least $5,000 in the current year, must be eligible. Employers may be more generous, never stricter.

Three details trip up employers and many summaries:

• The 2 years do not have to be consecutive. The IRS FAQs say “any 2 preceding calendar years (whether or not consecutive).” A worker who earned $5,000 or more in 2022 and again in 2025 meets the prior-year test for 2026 even with a weak year in between.
• The $5,000 is per year, not combined. Earning $3,000 in each of two years ($6,000 total) does not satisfy the test.
• Compensation includes the employee’s own deferrals. Publication 560 defines compensation as wages subject to income tax withholding plus salary reduction contributions to the SIMPLE IRA and elective deferrals to a 401(k), 403(b), SARSEP or 457 plan. An employee whose taxable W-2 wages are $4,600 after deferring $600 still has $5,200 of compensation.

Employers may lower or eliminate either dollar test (Publication 560 gives the example of $3,000 in any one preceding year), but cannot “impose any other conditions,” so there is no minimum age, no 1,000-hour rule and no requirement to be employed on December 31. The FAQs state directly that employees “may not be excluded from participating in a SIMPLE IRA plan based solely on their age.”

Which employees can be excluded from a SIMPLE IRA?

Only two groups may be excluded: employees covered by a collective bargaining agreement whose retirement benefits were bargained for in good faith (including airline pilots under such an agreement), and nonresident aliens who received no U.S. source earned income from the employer. Everyone else who meets the compensation test must be offered the plan.

The table applies the maximum eligibility rules to common situations.

Leaving out an eligible employee is one of the operational errors listed in the IRS SIMPLE IRA Plan Fix-It Guide, which calls for corrective employer contributions to put affected employees “in the position they would have been in if no mistake was made.”

Worked example: applying the rules to a 12-person practice in 2026

In this hypothetical, a practice with an owner and 11 staff, and no prior qualified plan, sets up a SIMPLE IRA effective January 1, 2026, and chooses the 2% nonelective contribution.

• Employer test. Twelve people is well under 100. Because it has no more than 25 employees earning $5,000 or more and no qualified plan in the 3 years before the SIMPLE IRA began, the higher 2026 deferral limit of $18,100 applies automatically, as long as the plan terms and employee notice reflect it (Notice 2024-2, Q&A E-1, E-2 and E-4).
• Employee tests. Nine staff earned $5,000 or more in at least two prior years and are eligible. An assistant hired in 2025 has only one prior year, so she must be admitted by 2027. A seasonal helper earning $3,000 a year never qualifies under the maximum rules.
• Employer cost. A hygienist earning $54,000 receives a 2% contribution of $1,080 whether or not she defers. The owner, with $180,000 of net earnings from self-employment, receives $3,600 on top of up to $18,100 of deferrals.

Can self-employed owners participate in their own SIMPLE IRA?

Yes, a sole proprietor or partner counts as an employee and can participate, even in a plan with no other employees. Publication 560 says the term employee “includes a self-employed individual who received earned income.”

For the owner, compensation means net earnings from self-employment (line 4 of Schedule SE) before subtracting SIMPLE IRA contributions. Publication 560’s own example shows an owner with $40,000 of net earnings deferring $4,000 and receiving a $1,200 match at 3%, for $5,200 total.

The owner faces the same eligibility test as staff, and whatever rule the plan adopts applies to everyone. A self-employed person with no staff who wants larger contributions often compares this plan with a solo 401(k), covered in how to open a solo 401(k).

When can eligible employees start contributing?

Eligible employees make or change deferral elections during a 60-day period that normally runs November 2 to December 31 before the plan year. A plan may offer longer or extra windows, never shorter ones.

1. Adopt the plan. A first-time SIMPLE IRA can be effective on any date from January 1 through October 1, using Form 5304-SIMPLE or 5305-SIMPLE; a business formed after October 1 can adopt as soon as administratively feasible.
2. Send the notice. Before the election period, each eligible employee must be told about the salary reduction option, the employer’s match or nonelective choice and any Roth or higher-limit features.
3. Open the 60-day window. The standard election period runs November 2 to December 31; midyear plans and newly eligible employees get a window adjusted to their start date.
4. Set up each account. A SIMPLE IRA must exist for each eligible employee before the first required deposit date.
5. Deposit on time. Salary deferrals must be deposited within 30 days after the end of the month they would have been paid; employer contributions are due by the tax return deadline, including extensions.

An employer that previously maintained a SIMPLE IRA can start a new one only on January 1 of a year, so a business that ends its plan cannot casually restart it midyear (IRS Publication 560).

How did SECURE 2.0 change SIMPLE IRA eligibility and features?

SECURE 2.0 left the core $5,000 employee test unchanged, but it added a second, employer-level eligibility layer for higher limits and opened new account options.

The 3-year prior-plan condition is the detail most summaries skip: Notice 2024-2, Q&A E-1, denies the higher limits to an employer that maintained a 401(a), 403(a) or 403(b) plan for substantially the same employees in the 3 years before the SIMPLE IRA started. The 25-employee count gets its own 2-year grace period (Q&A E-3).

Full dollar limits by age, including the $5,250 catch-up for ages 60 to 63, are broken out in SIMPLE IRA contribution limits 2026 and catch-up contributions 2026.

Does SIMPLE IRA eligibility affect other IRAs and Roth conversions?

Yes: being a participant does not limit how much can go into a personal traditional or Roth IRA, but it can limit whether a traditional IRA contribution is deductible. Publication 560 confirms SIMPLE contributions “won’t affect the amount an individual can contribute to a Roth or traditional IRA.”

A SIMPLE IRA counts as an employer retirement plan for the traditional IRA deduction test, and the “Retirement plan” box on Form W-2 shows coverage (IRS Publication 590-A). For 2026 a covered single filer’s deduction phases out between $81,000 and $91,000 of modified AGI, and between $129,000 and $149,000 for a covered spouse filing jointly (IRS IR-2025-111). How the two accounts interact is covered in can you have a 401(k) and an IRA.

Eligibility also shapes later Roth planning. Money that enters a traditional SIMPLE IRA is pre-tax, and during the first 2 years of participation it can move only to another SIMPLE IRA, with early withdrawals facing a 25% additional tax instead of 10%; the full rule is in can you roll a SIMPLE IRA into a traditional IRA. After that window, SIMPLE balances can be converted like other traditional IRA money, as explained in converting a traditional IRA to a Roth.

Where a plan offers the section 601 Roth SIMPLE election, employees in a low-bracket year can pay tax on contributions now rather than converting later. A pre-tax SIMPLE balance still on the books at year end counts in the pro-rata calculation for any backdoor Roth, a trap detailed in do SEP and SIMPLE IRAs count for the pro-rata rule. A financial professional can model whether converting SIMPLE money in a given year fits the household’s bracket picture.

Frequently asked questions

This article is for educational purposes only and is not individualized investment, tax, or legal advice. Consult a qualified professional about your specific situation.