SIMPLE IRA Retirement Plan for Small Business Owners Abroad

ByRandall Brody Expat Business Taxes, Retirement Abroad
simple IRA plan for expats and business owner abroad

If you’re a self-employed expat or running a small business abroad, planning for retirement doesn’t have to be complicated or expensive. One of the easiest and most affordable ways to start saving for your future is with a SIMPLE IRA plan, short for Savings Incentive Match Plan for Employees.

This retirement plan is specifically designed for small businesses and solopreneurs, making it a popular choice for expats with businesses or freelance income. But what exactly is a SIMPLE IRA, and how does it work?

Let’s find out.

What is a SIMPLE IRA?

A SIMPLE IRA is a retirement savings plan that allows both employer and employee contributions. It’s easier to manage than a 401(k) and doesn’t come with the same startup and maintenance costs as other retirement plans. While it was initially intended for U.S.-based small businesses, expats can also take advantage of its benefits, especially if you’re self-employed and looking for a way to reduce your taxable income while saving for retirement.

This plan can be beneficial for self-employed expats because you can contribute in both capacities, as both employee and employer.

How Does a SIMPLE IRA Work?

SIMPLE IRA contributions are made up of two parts:

  • Employee deferral – This is the portion you contribute out of your income.
  • Employer match – This is the additional contribution made by your business (which is still you, if you’re self-employed).

So, how much can you contribute?

SIMPLE IRA Contribution Limits 2025 (and Looking Ahead to 2026)

For 2025, the SIMPLE IRA contribution limit is:

  • $16,500 for employee deferrals
  • $3,500 catch-up contribution for those age 50 or older
  • Plus, an employer match of up to 3% of your net self-employment income

So, if you’re 52 and earning $40,000 from your self-employed business, you can contribute $16,500 as an employee, add a $3,500 catch-up contribution, and include an employer match of $1,200 (which is 3% of your income), for a total of $21,200 for the year.

Looking ahead, SIMPLE IRA limits for 2026 are expected to increase slightly with inflation. Keep an eye out for updates from the IRS.

You can use a SIMPLE IRA calculator online to estimate your contributions based on your income and age. This can help you visualize how much you’re allowed to set aside annually.

Are SIMPLE IRA Contributions Pre-Tax?

Yes. One of the biggest advantages is that SIMPLE IRA contributions are tax-deductible. They reduce your taxable income in the year you contribute, which can lower your overall tax liability. The funds also grow tax-deferred until you begin withdrawals in retirement.

SIMPLE IRA Rules and Limitations To Consider

Here are some SIMPLE IRA rules to keep in mind:

  • 2-Year Rule: You cannot roll over funds into another IRA or 401(k) without a penalty during the first two years of participation. This is called the SIMPLE IRA 2-year rule.
  • Early Withdrawal Penalty: If you withdraw funds before age 59½, you’ll typically face a 10% penalty. But if it’s within the 2-year window, the penalty jumps to 25%.
  • Set-Up Deadline: To contribute for a tax year, your SIMPLE IRA must be established by October 1 of that year, unless your business started later.
  • Limited Investment Control: Your SIMPLE IRA has to be held with a financial institution, meaning you won’t have the same level of control or investment options you’d get with a Solo 401(k) or SEP IRA where you act as trustee. Some brokerages offer limited fund choices or charge higher fees.
  • Combined Contribution Limits: If you’re contributing to a 401(k) through another job, the total elective deferral limit across both plans still applies. For 2025, the limit is $23,500 (or $31,000 if you’re age 50 or older). So, if you contribute $10,000 to your employer’s 401(k)

Can a SIMPLE IRA Be Rolled Into a 401(k)?

Eventually, yes, but only after the two-year rule has passed. Before that window, rolling over to a 401(k), Roth IRA, or Traditional IRA will trigger steep penalties.

SIMPLE IRA vs. 401(k): Which One’s Better?

For many self-employed or business owners, the SIMPLE IRA plan is an easy and affordable way to start retirement savings. But as your business income grows, you might hit contribution ceilings quickly.

Let’s compare:

EarningsSIMPLE IRA (Under 50)401(k) Solo (Under 50)
$50,000~$14,500Up to $30,000
$100,000~$17,000Up to $42,000+

While the 401(k) allows for much higher contributions, it also comes with higher administrative costs and complexity. So, if you’re just starting out, the SIMPLE IRA is still a solid first step.

Who Should Consider a SIMPLE IRA Plan?

A SIMPLE IRA plan is an excellent retirement savings option for:

  • Self-employed U.S. citizens, including sole proprietors and freelancers, who have net earnings from self-employment.
  • Small business owners with 100 or fewer employees who earned at least $5,000 in compensation during the preceding year.
  • U.S. expats running businesses abroad, provided they have U.S.-source earned income not fully excluded by the Foreign Earned Income Exclusion (FEIE).
  • Individuals seeking a straightforward, low-cost retirement plan with minimal administrative requirements.

Note that to contribute to a SIMPLE IRA, you must have earned income that is not entirely excluded by the FEIE. If all your foreign income is excluded, you may not be eligible to contribute. However, if you claim the Foreign Tax Credit instead of the FEIE, you may still qualify to make contributions.

A Truly Simple Plan

A SIMPLE IRA plan is easier to set up and operate than most other plans. Contributions go into an IRA you set up. Those familiar with IRA rules – in investment options, spousal rights, creditors’ rights – don’t have a lot new to learn.

Requirements for reporting to the IRS and other agencies are negligible. Your plan’s custodian, typically an investment institution, has the reporting duties. And the process for figuring the deductible contribution is a bit easier than with other plans.

How to Open a SIMPLE IRA Plan Abroad

Setting up a SIMPLE IRA while living abroad is straightforward if you follow these steps:

1. Choose a U.S.-Based Financial Institution

Begin by selecting a financial institution that offers SIMPLE IRA accounts, such as Fidelity, Vanguard, or Charles Schwab. Some institutions may require a U.S. mailing address, so it’s advisable to confirm their policies if you’re residing overseas. ​

2. Complete the Plan Documents

Once you’ve chosen a provider, you’ll need to fill out a plan document and an adoption agreement. The adoption agreement lets you pick an “effective date”, the date when contributions from your salary or business earnings will begin. To make contributions for the current year, the plan must be set up by October 1, unless your business started later. ​

3. Sign a Salary Reduction Agreement

You’ll also need a Salary Reduction Agreement. This document outlines how contributions will be deducted and deposited into your SIMPLE IRA account, even if you’re contributing from business profits instead of a formal paycheck.

4. Open Your SIMPLE IRA Account

After completing the paperwork, you’ll open a SIMPLE IRA account where all contributions will be made. The financial institution will typically guide you through this part of the process. ​

5. Double-Check Eligibility Based on Your Income

If you’re claiming the Foreign Earned Income Exclusion (FEIE), be aware that excluded income usually can’t be used to fund a SIMPLE IRA. If you use the Foreign Tax Credit instead, you may still qualify to contribute based on your earned income. ​

Final Thoughts

If you’re a self-employed expat or small business owner abroad, setting up a SIMPLE IRA plan can be one of the easiest ways to start building your retirement savings. With low setup costs, straightforward rules, and valuable tax benefits, it’s a smart option if you’re looking for a simple and flexible plan.

Just remember to stay on top of contribution limits, deadlines, and plan requirements to make the most of your savings opportunities while living overseas.

Have questions about your U.S. taxes or retirement planning as an expat?

Call us at 775-305-1040 to book a free 30-minute no-obligation consultation with us today.