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


In 2025, employees whose annual compensation is less than $750 can be excluded.

Any employee earning at least $5,000 during any 2 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.

Employers are required to make matching or nonelective contributions to all eligible employees who earned at least $5,000 during the year through one of the following:

  • Dollar-for-dollar matches up to 3%2 of compensation3
  • 2%2 nonelective contribution to all eligible employees


A nonelective contribution may be made to each eligible employee, in addition to mandatory employer contributions, in a uniform percentage up to 10% of compensation but not to exceed $5,000.

Maximum annual allocation to participant’s account
  • Dollar-for-dollar matches up to 3%2  of compensation3
    • No maximum compensation limit, not to exceed salary deferral contribution amount
    • 415 limit doesn’t apply
  • 2%2  nonelective contribution to all eligible employees who earned at least $5,000 during the year
    • The compensation limit of $345,000 for 2024 or $350,000 for 2025 does apply
  • Reduced dollar-for-dollar match below 3% of compensation3 but not less than 1% of compensation
    • The compensation limit doesn’t apply
    • This election is allowed for only 2 years out of a 5-year period 
    • 415 limit doesn’t apply
  • An optional nonelective employer contribution may be made to each eligible employee, in addition to mandatory employer contributions, in a uniform percentage up to 10% of compensation but not to exceed $5,000

Maximum annual participant deferral

No participant deferrals allowed

Employers with 25 or fewer employees (and employers with 26-100 employees who elect higher contribution amounts2)

  • 2024, $17,600; a catch-up contribution may be added of: $3,850 if age 50 or older
  • 2025, $17,600; a catch-up contribution may be added of: $3,850 if age 50-59, $5,250 if age 60-635 and $3,850 if age 64 and over
  • Contributions cannot exceed 100% of pay


Employers with 26-100 employees2

  • 2024, $16,000; a catch-up contribution may be added of $3,500 if age 50 or older
  • 2025, $16,500; a catch-up contribution may be added of $3,500 if age 50-59, $5,250 if age 60-635 and $3,500 if age 64 or older
  • Contributions 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
  • Pretax employee deferrals decrease their current taxable income
  • Flexible deferral amounts

1 A 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.
2 Employers with 26–100 employees who earned at least $5,000 in the prior year can qualify for the increased participant contribution limit by providing higher mandatory employer contributions of either a dollar-for-dollar match up to 4% of compensation or 3% nonelective contributions.
3 Match may be reduced to as low as 1% for 2 of the 5 years.
4 Effective January 1, 2025, the SECURE 2.0 Act allows higher catch-up salary deferral contributions for employees age 60-63.

Related content

Opening SEP IRAs

Opening SIMPLE IRAs

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