By Harry Prabandham · Updated September 27, 2026
Retirement Planning
SEP IRA vs SIMPLE IRA: Retirement Plans for Small Businesses
A SEP IRA takes employer-only contributions up to $72,000 in 2026; a SIMPLE IRA adds $17,000 employee deferrals plus a required employer match.
SEP IRA vs SIMPLE IRA: Retirement Plans for Small Businesses
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What are SEP and SIMPLE IRAs?
- Both are low-paperwork retirement plans for small businesses and the self-employed, funded into IRAs owned by each participant.
- A SEP IRA takes only employer contributions: up to 25% of pay or $72,000 in 2026, whichever is less.
- A SIMPLE IRA lets employees defer up to $17,000 in 2026, and the employer must match or make a fixed contribution.
- Neither requires an annual Form 5500 filing, unlike most 401(k) plans.
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Full Guide
What are SEP and SIMPLE IRAs?
- Both are low-paperwork retirement plans for small businesses and the self-employed, funded into IRAs owned by each participant.
- A SEP IRA takes only employer contributions: up to 25% of pay or $72,000 in 2026, whichever is less.
- A SIMPLE IRA lets employees defer up to $17,000 in 2026, and the employer must match or make a fixed contribution.
- Neither requires an annual Form 5500 filing, unlike most 401(k) plans.
How does a SEP IRA work?
- Contributions are discretionary each year and must be the same percentage of pay for every eligible employee, including the owner.
- Employers may limit eligibility to employees 21 or older who worked in 3 of the last 5 years and earned at least $800 in 2026.
- Self-employed owners calculate on net self-employment earnings, which works out to about 20% of net profit after the SE tax deduction.
- A SEP can be opened and funded up to the business's tax filing deadline, including extensions.
How does a SIMPLE IRA work?
- For 2026, employees can defer $17,000, plus a $4,000 catch-up at 50 or $5,250 at ages 60 through 63; some small employers qualify for higher limits.
- The employer must match up to 3% of pay or contribute 2% of pay for every eligible employee.
- It is generally limited to employers with 100 or fewer employees earning $5,000 or more, and usually must be set up by October 1.
- Withdrawals within two years of first participation face a 25% additional tax instead of 10% if under 59½.
How do they compare with a Solo 401(k)?
- A Solo 401(k) combines a $24,500 employee deferral with employer profit sharing, up to $72,000 total in 2026 plus catch-ups.
- At modest self-employment income, the deferral feature can allow more total savings than a SEP.
- Solo 401(k)s commonly offer Roth deferrals; Roth SEP and SIMPLE contributions are allowed by law but not offered by every provider.
- A Solo 401(k) requires Form 5500-EZ once plan assets exceed $250,000.
Matching the plan to the business
- A SEP often fits owners with variable income who want flexible, employer-only contributions.
- A SIMPLE often fits small employers who want employees to save from their own pay with a predictable employer cost.
- Growing headcount or higher owner savings goals can make a 401(k) worth considering; SECURE 2.0 allows a mid-year switch from SIMPLE to a safe-harbor 401(k).
Rules that commonly trip up owners
- A SEP must cover all eligible employees at the same percentage, which raises cost as the business hires.
- An employer generally cannot maintain a SIMPLE IRA alongside another retirement plan in the same year.
- Deadlines differ: SEP contributions follow the tax filing deadline, while SIMPLE deferrals must be deposited promptly from payroll.
- Excess contributions carry a 6% excise tax each year they remain in the account.
Key takeaways
- SEP IRAs offer high, flexible employer-only contributions; SIMPLE IRAs add employee deferrals with a required employer contribution.
- 2026 limits: SEP up to $72,000; SIMPLE $17,000 plus catch-ups; Solo 401(k) $24,500 deferral within a $72,000 total.
- Employee coverage rules often matter more than the headline limits once a business has staff.
- Confirm eligibility and deduction calculations with a CPA; Rubric does not prepare tax returns.
Related Topics
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Solo 401(k) & Self-Employed Retirement Plans
Self-employed people can use a solo 401(k), SEP IRA, SIMPLE IRA, or defined benefit plan; in 2026 a solo 401(k) allows up to $72,000 plus catch-ups.
Retirement PlanningMaximizing Your 401(k) Contributions
For 2026, you can defer $24,500 to a 401(k), plus $8,000 at 50+ or $11,250 at ages 60 to 63; total contributions from all sources cap at $72,000.
Retirement PlanningSECURE Act 2.0: Key Retirement Rule Changes
SECURE 2.0 raised the RMD age to 73 and later 75, ended Roth 401(k) RMDs, added a 60–63 catch-up, and allows 529-to-Roth rollovers.