SIMPLE IRAs
Capital Group, home of American Funds®, is a respected provider of SIMPLE IRAs, a tax-deferred retirement plan solution designed specifically for small businesses.
Benefits
Wide access
Available to employers with 1 to 100 employees.
Easy plan setup and administration
A third-party recordkeeper, third-party administrator, and annual 5500 and discrimination testing are not required.
Lower cost
Plan setup and annual fees are typically lower than those of 401(k) plans.
Tax benefits
For employers, contributions are tax deductible. For participants, pretax contributions are not taxed until withdrawn. Roth contributions grow tax-free, and earnings are tax-free for qualified withdrawals. New plans may be able to take advantage of tax credits. The SECURE 2.0 Act of 2022 created a substantial new startup tax credit based on contributions the employer makes on behalf of participants and expanded the existing startup tax credit on employer plan costs, to up to 100% of costs for certain smaller employers.
Higher contribution limits than traditional and Roth IRAs
Refer to Contributions below to learn more.
If the participant contributes $0, the employer contributes:
Solutions
Employers can choose the Capital Group solution that’s right for them.
SIMPLE IRA
Plan service model
Financial professional provides individual and investment advice to each participant.
Investments
Participants choose from a wide range of American Funds, including the American Funds Target Date Retirement Series®.
Default investment option
Because all investment selections must be made by participants, default investments are not necessary.
Contributions
Pretax contributions.
SIMPLE IRA Plus
Plan service model
Financial professional serves the plan with access to plan-level reports, simplified forms and an online, streamlined enrollment process.
Investment
Plan sponsors can customize and simplify their menus by choosing which of the American Funds to make available to participants.
Default investment option
Participants who don’t make an investment selection can be defaulted into a qualified default investment, such as a target date fund.
Contributions
Pretax and Roth contributions.*
*Only employee Roth deferrals are available at this time.
Eligibility
Eligible employers — Businesses with 1 to 100 employees, including state and local governments and tax-exempt organizations.
Eligible employees — Any employee who earns $5,000 during any two preceding years and who is expected to earn $5,000 in the current year must be allowed to participate; certain employees can be excluded. The employer may also specify less restrictive eligibility requirements on the SIMPLE adoption agreement to expand the group of eligible employees.
Contributions
Employer contributions
- Employers must make either:
- Dollar-for-dollar match of up to 3% of compensation,† or a nonelective contribution of 2% of compensation for all eligible employees.‡
- Optional employer contribution: A nonelective contribution may be made to each eligible employee, in addition to mandatory employer contributions, in a uniform percentage up to 10% of compensation but not to exceed $5,000.
- Employer contributions may be changed annually and are immediately vested.
Employee contributions
- Annual participant contributions through salary deferral are limited to $17,500 (for employers with 25 or fewer employees), or $16,000 (for employers with 26 or more employees) unless higher contributions are made. Participants age 50 and older may contribute an additional $3,500. § **
- Employee contributions are immediately vested and controlled by the employee.
† Matching contributions may be reduced to a minimum of 1% for no more than two of every five calendar years.
‡ Compensation on which the nonelective contribution is calculated is limited to $345,000 for 2024.
§ Employers with 26–100 employees can qualify for a participant contribution limit of $17,500 by providing higher mandatory employer contributions of either a dollar-for-dollar match up to 4% of compensation or 3% nonelective contributions. Contribution limits for 2024.
** The IRS has not announced the higher deferral and catch-up contribution limits for SIMPLE IRAs for 2024. The statute is unclear as to whether the 2024 limits are rounded down to the nearest $500 increment. We're showing the limits as if the rounding rules apply. If the rounding rules do not apply, the limits would be higher.
Taxes
- Employer contributions are not subject to Social Security/Medicare (FICA) or the Federal Unemployment Tax Act (FUTA).
- Participant deferrals are reported on W-2 forms and subject to FICA, FUTA and Railroad Retirement Tax (RRTA).
- Pretax participant contributions and earnings grow tax-exempt until withdrawn. Roth earnings are tax-free with qualified withdrawals.
Plan administration
Plan establishment
SIMPLE plans generally can be established between January 1 and October 1. If an employer previously had a SIMPLE plan, a new plan can only be established on January 1. New employers established after October 1 can start a SIMPLE plan as soon as administratively feasible. A plan can be established with Capital Group, home of American Funds, as long as the employer signed the SIMPLE adoption agreement on or before October 1; there is no specific deadline for receiving the agreement, application and/or check.
Funding of contributions
Participant contributions — Employers must deposit participant deferrals into each participant’s SIMPLE IRA as of the earliest date on which those contributions can reasonably be segregated from the employer’s general assets, but in no case later than the close of the 30-day period following the last day of the month in which the money was withheld. Most SIMPLE IRA sponsors (those with less than 100 employees) can take advantage of the seven-day safe harbor rule, which allows them to meet plan asset rules if they deposit employee contributions to the plan’s trust account within seven business days of being withheld from employee paychecks. If employers don’t meet the safe harbor, however, they must comply with the 30-day rule.
Employer contributions — To simplify and expedite the contribution process, employers are required to submit contributions online.
Easy SIMPLE IRA administration at Capital Group
Employer contributions — To simplify and expedite the contribution process, employers are required to submit contributions online.
Participant investments — Because participants control their accounts, they can monitor their investments and make exchanges and other transactions at any time, online or by phone.
Aggregating accounts for a lower Class A share sales charge (for SIMPLE IRAs only; does not apply to SIMPLE IRA Plus) — American Funds Class A shares are sold with an upfront sales charge. If account assets reach certain levels (breakpoints), a lower or no sales charge may apply. Aggregation of participant accounts in a SIMPLE IRA plan depends on the plan agreement selected by the plan sponsor:
- Capital Group prototype agreement: Because all contributions come to Capital Group, all accounts in the plan can be aggregated when determining sales charges. If the grouped assets reach a breakpoint, all participants benefit from the reduced sales charge. Participant accounts in the plan cannot be aggregated with personal accounts.
- Any other plan agreement: Because contributions may or may not come to Capital Group, accounts in the plan are not aggregated. Instead, a participant’s account may be linked with his or her other personal Capital Group accounts.
Set up an account
If you are an employee, reach out to your employer for more information.
If you are an employer, you can invest in American Funds through most online brokers or by working with your financial professional. Don't have a financial professional?
Why enroll?
Learn how a SIMPLE IRA can help you save for the future.
Investment options
Employees can establish an IRA with American Funds or another financial institution, and choose any of the investments offered.
American Funds Target Date Retirement Series®
Convenience
Select a target date fund that is based on your nearest anticipated retirement date. A single investment provides a fund-of-funds portfolio of actively managed American Funds aligned with an investor’s time horizon.
American Funds Portfolio Series
Objective-focused
With objectives like growth, income and preservation, these funds of funds offer diversification and control in a single investment.
Individual mutual funds
Customized
Investors can build an investment portfolio of American Funds to meet their specific preferences and needs.
Allocations may not achieve investment objectives. The portfolios' risks are directly related to the risks of the underlying funds.