SIMPLE IRA vs SEP IRA
Compare SIMPLE and SEP IRAs for small-business retirement plans — who contributes, limits, and employer match rules.
Overview
A SIMPLE IRA lets both employees and the employer contribute and is a fit for businesses with up to 100 employees. A SEP is fully employer-funded and can support any size business. SEP allows higher contributions but offers no employee deferral.
Choose SIMPLE IRA when...
Choose a SIMPLE IRA when you have employees and want them to contribute alongside you, or when you want a less expensive alternative to a 401(k).
Choose SEP IRA when...
Choose a SEP if you are self-employed, have variable cash flow, or want a high contribution ceiling for the owner without obligating employee deferrals.
Our Verdict
For very small businesses where the owner wants to put away the maximum, the SEP wins on contribution capacity. For employers who want to share the cost of saving with employees and provide a meaningful workplace benefit, the SIMPLE works better. Once the business grows past about 5 employees, a 401(k) often makes more sense than either.
Frequently Asked Questions
What is the difference between SIMPLE IRA and SEP IRA?
A SIMPLE IRA lets both employees and the employer contribute and is a fit for businesses with up to 100 employees. A SEP is fully employer-funded and can support any size business. SEP allows higher contributions but offers no employee deferral.
When should I choose SIMPLE IRA over SEP IRA?
Choose a SIMPLE IRA when you have employees and want them to contribute alongside you, or when you want a less expensive alternative to a 401(k).
When should I choose SEP IRA over SIMPLE IRA?
Choose a SEP if you are self-employed, have variable cash flow, or want a high contribution ceiling for the owner without obligating employee deferrals.
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