SIMPLE IRA vs. SEP-IRA for a Business With Staff

01Who funds it

A SEP is funded entirely by the employer — employees put in nothing, and cannot make salary deferrals. A SIMPLE IRA is funded primarily by employees deferring their own salary, with the employer providing either a match for those who participate or a fixed contribution for everyone eligible. That is the whole difference in one line, and everything else follows from it.

02How the employer cost behaves

Under a SEP, your cost scales with your own ambition: contribute a high percentage for yourself and you owe that percentage across the eligible payroll. Under a SIMPLE with a match, your cost scales with participation — you pay for the people who choose to save. For an owner who wants to put a lot away, the SEP is the expensive structure. For an owner who wants a predictable benefit line, the SIMPLE usually is not.

03Contribution room for the owner

A SEP generally allows a larger contribution for the owner at higher income, because it is a percentage of compensation up to a cap. A SIMPLE has a lower deferral ceiling. If maximising the owner's own savings is the point and there is a payroll, the SEP gets you there but bills you for the whole team on the way.

04Administration and timing

Both are light compared with a 401(k), but they are not identical. SIMPLE plans carry employee notice requirements and have specific windows for establishing the plan. SEPs are more forgiving on timing, which is one reason they get adopted late in a year. Neither is difficult; both are easier to set up correctly than to fix afterwards.

05The honest way to choose

Take your actual payroll, your actual eligible headcount, and the contribution you genuinely want to make for yourself, and cost both structures out. In my experience the answer is rarely ambiguous once the numbers are on the page — and it is frequently the opposite of what the owner assumed before they were. That modelling is the part I help with; the plan documents themselves come from the provider.

This article is general information, not individualized tax, legal, or financial advice. Every situation is different — reach out and we'll look at yours directly.