Who must be covered by a SIMPLE IRA?

First: can you offer a SIMPLE IRA at all?

Eligibility has two sides: the employer’s and the employee’s. For the employer, Publication 560 says you can set up a SIMPLE IRA plan only if you had 100 or fewer employees who received $5,000 or more in compensation from you for the preceding year. Count everyone who worked for you at any time during that calendar year, whether or not they could join the plan. Self-employed individuals who received earned income and leased employees count. You also generally cannot maintain another retirement plan to which you contribute for service in the same years, unless the other plan is for collective bargaining employees.

If you grow past 100 after running the plan for at least a year, a grace period treats you as still qualifying for the 2 calendar years after the last year you met the limit. A different grace period protects you through an acquisition or similar transaction.

The employee test

For the employee, the publication gives a two-part test. The person must have received at least $5,000 in compensation during any 2 years preceding the current calendar year, and must be reasonably expected to receive at least $5,000 during the current calendar year. Note the word “any”: the two qualifying years do not have to be the last two or consecutive, and the publication does not set a lookback window beyond “preceding” years, so the calculator asks you to count how many earlier years cleared $5,000.

Example: a part-time worker earned $6,000 in 2022, $2,000 in 2023, $7,000 in 2024, and is expected to earn $5,500 in 2025. Two earlier years (2022 and 2024) cleared $5,000 and the 2025 expectation does too, so the worker is eligible for 2025. A worker with only one qualifying earlier year is not yet required to be covered, even if this year’s pay is high.

Looser rules are allowed, stricter are not

You can use less restrictive eligibility requirements by reducing or eliminating the prior-year compensation requirement, the current-year requirement, or both. The publication’s example is allowing anyone who received at least $3,000 in any preceding calendar year. But you cannot impose any other condition for participating: no minimum age, no hours test, no requirement that the employee has to be on payroll on a certain date. A SIMPLE IRA plan has fewer eligibility levers than a 401(k), which is part of the trade-off for its simplicity.

If you want a less strict rule, say so in the plan document or the model form (Form 5304-SIMPLE or Form 5305-SIMPLE), because the employees must be told.

Who can be excluded

Two groups need not be covered: employees covered by a union agreement whose retirement benefits were bargained for in good faith by the union and you, and nonresident alien employees who received no U.S. source wages, salaries or other personal services compensation from you. The calculator marks them as excludable. Everyone else who meets the test must be offered the plan.

Remember that “covered” means offered the chance to participate. A covered employee can still decline to make a salary reduction choice. But with the 2% nonelective formula, the employer contribution is paid to every eligible employee with at least $5,000 of pay regardless of their choice, as covered on our SIMPLE IRA match page.

What counts as compensation

For employees, SIMPLE compensation is the total wages, tips and other compensation from the employer subject to federal income tax withholding, plus amounts paid for domestic service in a private home, local college club or local chapter of a college fraternity or sorority. It also includes the employee’s salary reduction contributions under this plan and certain other elective deferrals (401(k), SARSEP, 403(b) and 457 deferrals). For a self-employed owner it is net earnings from self-employment on line 4 of Schedule SE, before subtracting contributions made to the plan for yourself. Use that definition, not W-2 box 1 alone, when you test the $5,000 thresholds.

Setting up and deadlines

A plan can generally take effect on any date from January 1 through October 1, if you did not previously maintain a SIMPLE IRA plan; if you did, the plan can start only on January 1. Employees must be notified before the election period, which is generally the 60 days before January 1 (November 2 to December 31 of the prior year). A SIMPLE IRA must be set up for each eligible employee before the first date a contribution is required to be deposited. Compare the broader SEP rules on our SEP coverage page, where the thresholds and the time-in-service test differ.

Sources

• IRS Publication 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans) (2025): Chapter 3, SIMPLE IRA Plan: Who Can Set up a SIMPLE IRA Plan?; Who Can Participate in a SIMPLE IRA Plan?; Compensation. Read November 2, 2026.

Edition read: Publication 560 (2025), for use in preparing 2025 returns. Where the publication gives 2026 figures, this page labels them 2026. Dollar limits change every year; check the current publication and form instructions for your plan year. This page summarizes the publication and does not replace it.