Two arrangements share most of a name and almost none of their detail, and an employer that confuses them commits to the wrong thing. A simple 401k is a 401(k) plan with a safe harbour design available to smaller employers. A SIMPLE IRA is a different arrangement entirely. Both oblige the employer to contribute, which is the point most often missed when they are described as the easy option. This page states the IRS figures for 2026, the eligibility test each applies, and what the employer is on the hook for.
The simple 401k plan, and the eligibility test in it
The IRS 401(k) resource guide describes this plan type as available to employers with 100 or fewer employees who received at least $5,000 in compensation from the employer for the preceding calendar year, and records that, as with a safe harbor 401(k) plan, the employer is required to make employer contributions that are fully vested. Read those two facts together: the arrangement is simpler because the employer has agreed to fund it, not because there is less to do.
The SIMPLE IRA is a different arrangement with its own limits
For 2026 the IRS puts the SIMPLE elective deferral limit at $17,000, with a higher employee contribution limit of $18,100 for employers with 25 or fewer employees, and a higher catch-up limit of $5,250 for ages 60 to 63. The nonelective formula obliges an employer contribution of 2% of compensation up to the annual limit of $360,000 for 2026 even where an eligible employee contributes nothing, and SECURE 2.0 allows an additional uniform nonelective contribution up to the lesser of 10% of compensation or $5,000.
How the numbers compare with an ordinary 401(k)
The IRS puts the 401(k) elective deferral limit at $24,500 in 2026, with an $8,000 catch-up at age 50 for traditional and safe harbor plans and a higher catch-up of $11,250 for the ages the rule names. So the SIMPLE arrangements trade a lower ceiling for a lighter administrative load, and the employer pays for that trade with a mandatory contribution. Which way round that lands depends on your own population's deferral behavior, not on which plan sounds easier.
What this costs the headcount plan
A mandatory employer contribution is a per-employee cost that scales with every hire, which makes it a line of the headcount plan rather than a benefits footnote. Put it beside the role's loaded cost before the plan is approved: a 2% or 3% nonelective commitment across a growing team is a number the budget has to carry, and the free worksheet works it from your own salaries rather than from an average.
Questions people ask about simple 401k
Is a simple 401k the same as a SIMPLE IRA?
No. A simple 401k is a 401(k) plan with a safe harbour design; a SIMPLE IRA is a separate arrangement with its own limits and its own contribution formulas. They share a word and very little else, and committing to the wrong one is an expensive filing error.
Which employers can use the simple 401k?
The IRS resource guide describes it as available to employers with 100 or fewer employees who received at least $5,000 in compensation from the employer for the preceding calendar year, and notes that the employer is required to make fully vested employer contributions.
What is the SIMPLE deferral limit for 2026?
The IRS puts it at $17,000 for 2026, with a higher employee contribution limit of $18,100 where the employer has 25 or fewer employees, and a higher catch-up of $5,250 for ages 60 to 63.
Is a simple retirement plan cheaper for the employer?
Cheaper to administer, not cheaper to fund. Both SIMPLE arrangements oblige an employer contribution, which is a per-head cost that grows with hiring. That is why it belongs in the headcount plan rather than in a benefits summary.