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What is the difference between SIMPLE and SEP IRA?

1. Contribution Limits

• SEP IRA: Employer-only contributions up to 25% of compensation, capped at $70,000 in 2025.
• SIMPLE IRA: Employees can contribute up to $16,500 in 2025, plus a $3,500 catch-up for those 50+. Employers must match up to 3% or contribute 2% non-electively.

2. Eligibility

• SEP IRA: For businesses of any size. Employees must be 21+, worked 3 of the last 5 years, and earned at least $750.
• SIMPLE IRA: For employers with 100 or fewer employees who earned $5,000+ in any 2 previous years and are expected to do so again this year.

3. Funding Responsibilities

• SEP IRA: Funded only by the employer.
• SIMPLE IRA: Funded by both employer and employee.

4. Vesting

• Both plans: Employees are 100% vested immediately in all contributions.

5. Administrative Requirements

• SEP IRA: Minimal admin, no annual filings.
• SIMPLE IRA: Also low-maintenance, but includes mandatory contributions and employee notices.

6. Best For

• SEP IRA: Great for businesses that want flexibility in contributions or have variable income.
• SIMPLE IRA: Ideal for small businesses seeking a structured plan with both employer and employee contributions.