James Sweeney No Comments

When it comes to saving for retirement, most everyone has heard of the 401(k) and the IRA. If you’re a small business owner, or if you plan to be at some point in the future, I want to bring your attention to two other retirement plans with two important benefits:

  • Higher Contributions – these plans may allow you to defer more income than a traditional IRA.
  • Simplicity – these plans are easier and less expensive to set up and administer than a 401(k).

The plans I refer to are called the Simplified Employee Pension (SEP) and the Savings Incentive Match Plan for Employees (SIMPLE). Don’t let their intimidating names fool you, these two retirement plans are as simple as they come.

You may have heard of SEPs and SIMPLEs at some point or even had someone recommend you establish one. This post will give you a better idea if one of these plans could be a good fit for your business.

Comparing the Plans




Setup and Maintenance

Very simple setup and annual filing requirements

Tax Deductibility

Employer contributions are tax deductible

Vesting Schedule

All contributions are immediately 100% vested


Unlike 401(k)’s, participants cannot borrow against plan balances

Employee Contributions


Up to $12,500, tax deferred

Employer Contributions

Discretionary up to 25% or $53,000, whichever is less. *

Must be pro-rata to all eligible employees.

Required match up to 3%


Flat 2% contribution to all eligible employees

Eligible Employees

Age > 21

Earnings > $600

Employed 3 of last 5 years

>$5,000 compensation in current and 2 preceding years

Company Size


Up to 100 employees


Tax filing date, including extensions

Typically, October 1st due to 60-day election period requirement

*For self-employed individuals with pass-through income, the maximum contribution is 20% of net adjusted self-employment income.

Choosing a Plan

As with most financial decisions, there’s not a clear cut winner between the SEP and the SIMPLE – it all depends on your situation and goals. Here are a few things to consider:

  • Maximizing Contributions – if you have a reasonably high income, in most cases you will be able to contribute more under a SEP, due to the higher limit. However, keep in mind that if you have eligible employees, you will have to contribute the same percentage of their salaries as you do your own.
  • Flexibility – if your business has large swings in cash flow from year to year and you don’t want to be compelled to make contributions, the SEP may be a better option since the SIMPLE requires either a match or a 2% flat contribution to eligible employees.
  • Employee Participation – Do you want your employees to have some skin in the game? A SIMPLE may be more appropriate since the SEP doesn’t allow for employee contributions.
  • Timing – If you are looking to defer some income from last year and you haven’t filed taxes yet, you can still set up and contribute to a SEP, but not a SIMPLE.

Getting Started

If you are a business owner looking to defer more income than a Traditional IRA will allow and/or you want to provide a retirement option for your employees that is both simple to set up and easy to administer, a SEP or SIMPLE may be just the solution for you.

I can help you decide if one of these options makes sense for your business as well as take care of the setup and management of your plan.

To schedule a complimentary, no-obligation introduction click here.