Compare SEP and SIMPLE IRAs

ARTICLE TAKEAWAYS

  • Compare the features of SEP and SIMPLE IRAs
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Plan features

SEP plans

SIMPLE IRAs

Employers who qualify
  • All taxable businesses, but appeals to small employers
  • Government entities
  • Tax-exempt organizations
  • No more than 100 employees
  • All taxable businesses
  • Government entities
  • Tax-exempt organizations

Who must be covered

Any employee who has worked for the company for 3 of the past 5 years and is age 21 or older.


In 2023, employees whose annual compensation is less than $750 can be excluded.


In 2024, employees whose annual compensation is less than $750 can be excluded.

Any employee earning at least $5,000 during any two preceding years and who is expected to earn $5,000 in the current year.


Certain employees can be excluded. To learn who may be excluded, refer to SIMPLE IRA Plan FAQs.

Required employer contribution

There is no requirement. The employer may choose to contribute or not each year, unless a plan is top-heavy.1 A minimum allocation may be required.
  • Dollar-for-dollar match up to 3% of pay2 or
  • In 2023, 2% of gross pay up to $330,000 for all eligible participants who earn at least $5,000 during the year
  • In 2024, 2% of gross pay up to $345,000 for all eligible participants who earn at least $5,000 during the year

Maximum annual allocation to participant’s account
  • The amount an employee contributes from their salary to a SIMPLE IRA cannot exceed $15,500 in 2023; if age 50 or older, a catch-up contribution of up to $3,500 may be added, plus a $3,500 match
  • The amount an employee contributes from their salary to a SIMPLE IRA cannot exceed $16,000 in 2024; if age 50 or older, a catch-up contribution of up to $3,500 may be added, plus a $3,500 match
  • Employers limited to matching 3% of compensation

Maximum annual participant deferral

No participant deferrals allowed
  • 2023, $15,500; if age 50 or older, a catch-up contribution of $3,500 may be added
  • 2024, $16,000; if age 50 or older, a catch-up contribution of $3,500 may be added
  • Cannot exceed 100% of pay

Vesting

Immediate 100% vesting

Immediate 100% vesting

Testing required
  • Top-heavy: Yes1
  • ADP: N/A
  • ACP: N/A
  • 415: Yes
  • Top-heavy: No1
  • ADP: No
  • ACP: No
  • 415: No

Advantages
  • Minimal paperwork and expense
  • Minimal tax filing
  • No requirement to make ongoing contributions
  • Minimal paperwork and expense
  • Minimal tax filing
  • Pre-tax employee deferrals decrease their current taxable income
  • Flexible deferral amounts

1A plan is top-heavy if, on the determination date, the total value of the accounts of all key employees is greater than 60% of the total value of the accounts of all employees.
2Match may be reduced to as low as 1% for 2 of the 5 years.
3The defined contribution annual additions limit is effective for limitation years ending in the calendar year.

Related content

Opening SEP IRAs

Opening SIMPLE IRAs

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