SIMPLE IRAs for small businesses
A new way to save
You can offer participants a new way to save for retirement by adding Roth after-tax deferral contributions as
an optional SIMPLE IRA plan feature. Learn more.
Choose the Capital Group solution that’s right for you
“I primarily work with individual investors. So, SIMPLE IRAs are usually the right solution for my small-business clients.”
SIMPLE IRA
Plan service model
Financial professional provides individual advice on investment selection to each participant
Cost per participant
A one-time $10 setup fee and ongoing $10 annual fee
Pricing
Class A and C shares (commissionable) and Class F-2 (fee-based)
Investments
Participants choose from a wide range of American Funds, including the American Funds Target Date Retirement Series®2
Default investment option
Because all investment selections must be made by participants, default investments are not necessary
Contributions
Pretax and, beginning January 1, 2025, Roth3
“I’ve been building a 401(k) retirement plan side to my practice and I’ve found that SIMPLE IRA Plus suits the needs and budgets of many of my clients.”
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
Cost per participant
A one-time $25 setup fee and ongoing $25 annual fee
Pricing
Class R-3 shares (commissionable) and Class R-5E shares (fee-based)
Investments
Plan sponsors can customize and simplify their menus by choosing which of the American Funds mutual 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 Roth3
Details
Eligible employers — Any business with 1 to 100 employees, including state and local governments and tax-exempt organizations.
Eligible employees — Any employee who earned at least $5,000 during any 2 preceding years and who is expected to earn at least $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.
Employer contributions
- Employers must make either:
— Dollar-for-dollar match of up to 3% of compensation,1 or a non-elective contribution of 2% of compensation for all eligible employees.
— Optional employer contribution: A non-elective 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 $5,100 for 2025.
- Employer contributions are immediately vested and may be changed annually during the enrollment period for SIMPLE IRA and SIMPLE IRA Plus.
Employee contributions (2025)
- For plans with 25 or fewer employees, maximum employee contributions are $17,600. Additional catch-up contributions can be made in the amount of $3,850 for those age 50-59, $5,250 for those age 60-63 and $3,850 for those age 64 and over.
- For plans with 26 or more employees, maximum employee contributions are $16,500. Additional catch-up contributions can be made in the amount of $3,850 for those age 50-59, $5,250 for those age 60-63 and $3,850 for those age 64 and over. However, these plans can qualify for the higher employee contribution limits of $17,600 (and $3,850 catch-up) by opting to make higher mandatory employer matching contributions of 4% of compensation or nonelective contributions of 3%.
Taxes
- Employer contributions are not subject to Social Security/Medicare (FICA) or Federal Unemployment (FUTA).
- Pretax participant contributions and earnings grow tax-exempt until withdrawn. Roth earnings are tax-free for qualified withdrawals.
- Participant deferrals are reported on W-2 forms and subject to FICA, FUTA and Railroad Retirement Tax (RRTA).
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
— The Department of Labor requires employers to remit employee contributions in a timely manner. SIMPLE IRA sponsors can take advantage of the 7-day safe harbor rule, which allows them to meet plan asset rules if they deposit employee contributions to the plan’s trust account within 7 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. 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 any case, no later than the close of the 30-day period following the last day of the month in which the money was withheld
- Employer contributions — Employers must deposit contributions by the employer’s tax filing deadline (including extensions).
SIMPLE IRAs from 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.
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