SIMPLE IRA vs SEP IRA: Small-Business Retirement Plans
Short answer. A SIMPLE IRA is for employers with up to 100 employees. Employees can defer part of their pay, and the employer must match or contribute. A SEP IRA is funded only by the employer, at the same percentage of pay for everyone, and its limits are usually higher. Both are cheap to run with little paperwork.
Side by side
| SIMPLE IRA | SEP IRA | |
|---|---|---|
| Who contributes | Employees and employer | Employer only |
| Employer contribution | Required: match up to 3% or fixed 2% | Optional, same percentage for all eligible staff |
| Employer size | Up to 100 employees | Any size |
| Contribution limit | Lower employee deferral, with catch-up | Higher: a percentage of pay up to the plan cap |
| Roth option | Allowed since 2023 under SECURE 2.0 | Allowed since 2023 if the plan offers it |
| Administration | Simple, annual notices | Very simple, no annual filing |
| Best for | Small employers with staff who want to defer | Self-employed and owner-only businesses |
Which one fits you?
Lean towards SIMPLE IRA if…
- you have employees who want to defer their own pay
- you want predictable required employer contributions
Lean towards SEP IRA if…
- you are self-employed or want maximum flexibility
- you want to put in large employer contributions in good years
Frequently asked questions
Can I have a SIMPLE IRA and a 401(k)?
Generally not for the same employer in the same year; check the rules for multiple plans.
What is the penalty for early withdrawal?
Standard 10% early-withdrawal tax applies; withdrawals from a SIMPLE IRA within two years of joining can face 25%.
Which has higher limits?
SEP IRA limits are usually higher for owners with high income. Check current IRS limits before choosing.
General education, not personal financial advice. Figures are typical US examples and vary by provider and year.