Two retirement plans built specifically for small business owners and self-employed people — with very different rules on who contributes, how much, and how much administrative work is actually involved. Here's how to tell which one actually fits.
Same basic goal — tax-advantaged retirement savings for a small business — very different structures.
Figures reflect 2026 IRS limits. SEP-IRA cap: lesser of 25% of compensation or $72,000. SIMPLE IRA standard employee deferral: $17,000, with an enhanced limit of $18,100 available to small employers (25 or fewer employees) who elect the SECURE 2.0 provision. Confirm current limits and your specific eligibility during a consultation.
A SEP-IRA lets you contribute a meaningful percentage of your own income, with minimal paperwork and no employees to worry about.
Whether a SEP or SIMPLE fits better often comes down to payroll size, cash flow predictability, and whether you want employees sharing the funding responsibility.
Both SEP and SIMPLE IRAs are specifically designed to avoid the compliance testing that comes with a traditional 401(k).
This tradeoff is exactly what separates the two plans — worth walking through with real numbers before choosing either one.
A SEP's higher ceiling looks appealing, but if it means funding the same percentage for every employee every year, the real cost can outweigh the benefit for a growing team.
Unlike a SEP, a SIMPLE IRA's employer contribution is mandatory every year — not optional based on how business is going.
The right plan for a one-person operation often isn't the right plan five years later with a full staff — this is worth reviewing periodically, not setting once and forgetting.
This decision doesn't happen in isolation — it connects directly to your broader business protection picture. If you already have a Buy-Sell Agreement or Key Man coverage in place, your retirement plan structure should be coordinated with that same overall strategy, not treated as a separate decision.
An employer-funded retirement plan for small businesses and self-employed individuals — up to 25% of compensation, or $72,000 for 2026, with the same percentage required for every eligible employee.
A retirement plan for businesses with 100 or fewer employees that accepts both employee deferrals and required employer contributions — $17,000 standard employee limit for 2026.
A SEP is funded entirely by the employer with a much higher ceiling. A SIMPLE allows employee contributions too, but has a lower overall limit and requires an employer contribution every year.
Yes — this is one of the most common uses, letting a solopreneur contribute on their own behalf as both the business and the individual.
It depends on the goal — a SEP requires equal contribution percentages for everyone, while a SIMPLE spreads funding between employer and employees, often more predictable for a growing business.
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