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 For participants, contributions and earnings are not taxed until withdrawn. New plans may be eligible for an annual tax break of $500 to $5,000 for three years.
Higher contribution limits than a traditional IRA:
Participants can contribute, through salary deferrals, up to $15,500 a year, or $19,000 if age 50+.*
Employers must make either:
- Dollar-for-dollar matching contributions up to 3% of compensation, but may be reduced to as low as 1% in two of every five years; or
- Non-elective contribution equal to 2% of compensation (limited to $330,000 for 2023).
- Employer contributions may be changed annually. All contributions are immediately vested.
See examples of how employer contributions work.
If the participant contributes $0, the employer contributes:
Assuming a participant has $50,000 in compensation:
†The maximum amount of non-elective contributions for 2023 is $6,600.
Pricing
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
SIMPLE IRA PLUSSM
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
Eligibility
Eligible employers — Business 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 in on the SIMPLE adoption agreement to expand the group of eligible employees.
Contributions
Employer contributions
- Employers must either make dollar-for-dollar matching contributions limited to 3% of an employee’s compensation, but may be reduced to as low as 1% in two of every five years; or nonelective 2% contributions, based on employee compensation up to $330,000 for 2023, which means that nonelective contributions are limited to $6,600 a year.
- Employer contributions may be changed annually and are immediately vested.
Employee contributions
- Maximum annual participant contributions, through salary deferrals, are $15,500 a year; participants age 50 and older may contribute an additional $3,500.*
- Employee contributions are immediately vested and controlled by the employee.
* Contribution limits for 2023. For self-employed individuals, compensation is based on self-employment income minus deductible plan contributions and 50% of self-employment taxes paid.
Taxes
- Employer contributions are not subject to Social Security/Medicare (FICA) or Federal Unemployment Tax Act (FUTA).
- Participant contributions and earnings grow tax-exempt until withdrawn.
- Participant deferrals are reported on W-2 forms and subject to FICA, FUTA and Railroad Retirement Tax (RRTA).
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 SeriesSM
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.
Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.
Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing.
Although the target date portfolios are managed for investors on a projected retirement date time frame, the allocation strategy does not guarantee that investors' retirement goals will be met. Investment professionals manage the portfolio, moving it from a more growth-oriented strategy to a more income-oriented focus as the target date gets closer. The target date is the year that corresponds roughly to the year in which an investor is assumed to retire and begin taking withdrawals. Investment professionals continue to manage each portfolio for approximately 30 years after it reaches its target date.
This material does not constitute legal or tax advice. Investors should consult with their legal or tax advisors.
All Capital Group trademarks mentioned are owned by The Capital Group Companies, Inc., an affiliated company or fund. All other company and product names mentioned are the property of their respective companies.
Use of this website is intended for U.S. residents only.
American Funds Distributors, Inc., member FINRA.
This content, developed by Capital Group, home of American Funds, should not be used as a primary basis for investment decisions and is not intended to serve as impartial investment or fiduciary advice.
Allocations may not achieve investment objectives. The portfolios' risks are directly related to the risks of the underlying funds.