The SIMPLE IRABetween SEP and 401(k).
Set up at Schwab, integrated with your payroll, and managed by the same portfolio managers who run our institutional accounts. A small-business retirement plan run with institutional discipline.
Employee Deferral, Employer Match
A salary deferral plan with a mandatory contribution from the business.
A SIMPLE IRA is a payroll-based retirement plan. Each employee chooses how much of their paycheck to defer, up to $17,000 in 2026, and the employer must contribute too: either a dollar-for-dollar match up to 3% of compensation, or a flat 2% of every eligible employee’s pay, whether they participate or not.
Setup is a single IRS form (Form 5304-SIMPLE or 5305-SIMPLE) and a notice to employees. No Form 5500 each year. No nondiscrimination testing. The employer’s annual decision is whether to use the matching formula or the nonelective formula for the coming plan year, and it gets announced before the year starts.
The business must have 100 or fewer employees who earned at least $5,000 in the prior calendar year. An employee qualifies if they earned $5,000 in any 2 preceding years and are reasonably expected to earn $5,000 in the current year.
Employees are fully vested in everything from day one. Plan loans aren’t permitted. Early withdrawals in the first 2 years of participation carry a 25% penalty, dropping to 10% after. As of January 2026, Schwab supports Roth deferrals for employees who want them.
The Right Plan for the Right Business
SIMPLE IRAs sit between a SEP IRA and a 401(k). A SEP only allows employer contributions, so employees can’t defer from their own paycheck. A 401(k) handles every situation but adds annual testing, a Form 5500, and meaningful administrative cost a SIMPLE doesn’t carry. A SIMPLE lets employees defer their own pay, requires a modest mandatory employer contribution, and skips the testing and the filing.
The plan fits a small business with stable headcount whose employees want to defer from each paycheck. The mandatory 3% match or 2% nonelective is predictable and budgetable. It stops being the right plan when the owner wants to defer more than $17,000 personally (a 401(k) allows $24,500 in 2026 with catch-ups on top), when the workforce is over 100 employees, or when the plan needs to permit loans, which SIMPLE doesn’t.
What It Takes to Run a SIMPLE
Easy to set up. Easy to let drift.
Running a SIMPLE involves five recurring tasks: maintaining the plan documents (which required amendment after SECURE 2.0), opening the plan with the right IRS form, coordinating contributions with payroll each pay period, electing the matching formula and issuing the annual employee notice before each plan year, and managing the investments. Here’s how we handle each:
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Plan Setup at Schwab
We open the SIMPLE at Schwab and handle the IRS form: Form 5305-SIMPLE if all accounts are at Schwab, Form 5304-SIMPLE if employees choose their own custodian. Schwab is the custodian for every BAM account, so 5305 is the usual path.
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Payroll Coordination
We coordinate with the company’s payroll provider so each pay period’s deferrals and employer contributions land in the right accounts on time. ADP and Paychex are our regular partners; other providers work.
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Annual Election and Employee Notice
Each year, we work with the owner’s CPA to lock in the 3% match or 2% nonelective formula for the coming plan year. We draft the IRS-required notice to employees; the employer signs and distributes it. Both pieces have to be in place before the plan year starts.
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Investment Management
Employee SIMPLE accounts are individually owned. Where an employee chooses to engage BAM directly, we manage the SIMPLE alongside any other accounts in their household, with the contribution invested in a coherent allocation rather than left in cash.
Until 2025, the SIMPLE IRA was simple. SECURE 2.0 changed that. There are now two contribution limits ($17,000 standard, $18,100 for employers with 25 or fewer employees), two catch-up limits depending on the plan tier, a super catch-up for ages 60 to 63, and a Roth deferral option that not every custodian supports yet. Plan documents written before 2023 don’t reflect the new tier structure and need to be amended. The right time to sort this out is before the plan year starts, not during a tax-year clean-up.How we approach it
Talk to a Portfolio Manager About a SIMPLE IRA
Call or email. You’ll talk to one of the people managing the money, and one conversation is usually enough to tell whether a SIMPLE is the right shape for the business.