SEP-IRA & SIMPLE
SEP-IRA & SIMPLE IRA
Low-cost, easy-to-administer retirement plans built for small businesses and self-employed professionals.
SEP-IRA (Simplified Employee Pension)
The SEP-IRA is one of the simplest and most generous retirement plans available to self-employed individuals and small business owners. There are no annual filing requirements, no complex administration, and no minimum employee participation requirements.
Key Features
2025 Contribution Limit: Up to 25% of compensation, maximum $70,000- Only the employer contributes, employees cannot make elective deferrals
- All eligible employees must receive the same percentage of compensation as a contribution
- Contributions are immediately 100% vested, employees own the money right away
- Can be set up as late as the employer's tax filing deadline (including extensions)
- No annual IRS reporting (Form 5500) required
Watch out for the "all eligible employees" rule: If you have employees, you must contribute the same percentage for them as you do for yourself. For a solo business owner, this is no concern, but as you hire staff, the cost increases. Eligible employees generally include those age 21+, who earned at least $750 in any 3 of the last 5 years.
SIMPLE IRA (Savings Incentive Match Plan for Employees)
The SIMPLE IRA is designed for small businesses with 100 or fewer employees. Unlike the SEP-IRA, employees can make their own elective deferrals, making it feel more like a 401(k) but with far less administrative burden.
2025 Contribution Limits
| Category | Limit |
|---|---|
| Employee Elective Deferral | $16,500 |
| Catch-Up (Age 50+) | +$3,500 |
| Enhanced Catch-Up (Age 60–63, SECURE 2.0) | +$5,250 |
Employer Contribution Options
- Dollar-for-dollar match on employee contributions up to 3% of compensation (can be reduced to 1% in 2 of any 5 years)
- Non-elective contribution of 2% of compensation for all eligible employees, regardless of whether they contribute
The 2-Year Rule: Money moved out of a SIMPLE IRA within the first 2 years is subject to a 25% early withdrawal penalty (not the usual 10%). After 2 years, normal rules apply. Plan accordingly before rolling over funds.
SEP-IRA vs. SIMPLE IRA: Quick Comparison
| Feature | SEP-IRA | SIMPLE IRA |
|---|---|---|
| Max Contribution (2025) | $70,000 (employer only) | $16,500 + employer match |
| Employee Deferrals | No | Yes |
| Employer Required | Flexible, not required every year | Yes — match or 2% non-elective |
| Eligible Employer Size | Any size | 100 or fewer employees |
| Vesting | Immediate | Immediate |
| Early Withdrawal Penalty | 10% before 59½ | 25% in first 2 years; 10% after |
| Setup Deadline | Tax filing date (w/ extensions) | October 1 of the year |
| Annual IRS Reporting | None | None |
Find the Right Small Business Plan
The right choice between SEP-IRA, SIMPLE IRA, and Solo 401(k) depends on your revenue, number of employees, and contribution goals. Let's find the plan that works best for you.
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