Retirement plans
for small businesses
Request a plan review
Plan Design

SIMPLE IRA vs. SEP IRA vs. 401(k): Choosing the Right Plan

· Samah Naguib, CFA®

There is no single best plan — there is a best plan for your payroll, your workforce and your goals as an owner. Here is how the three most common options compare.

2026SEP IRASIMPLE IRA401(k)
Employee deferralsNone — employer-funded only$17,000 (catch-up $4,000 at 50+; $5,250 at 60–63)$24,500 (catch-up $8,000 at 50+; $11,250 at 60–63)
Employer contributionDiscretionary; same % of pay for every eligible employee, up to 25% of payRequired: 3% match or 2% of pay for all eligibleFlexible: match, profit sharing, or safe harbor
Max total per person$72,000Deferral + employer amount$72,000 plus catch-up
TestingNoneNoneAnnual testing unless safe harbor
Paperwork & costLowestLowHighest, most flexible
Best fitOwner-only or very small teams with uneven profitsUp to 100 employees wanting simple, predictable costsOwners who want to save the most and design the benefit

SEP IRA: simple, but the owner pays for everyone

Because the employer must contribute the same percentage of pay for every eligible employee, a SEP works best when the owner is the only employee or wants to reward everyone equally in good years. Employees cannot add their own money.

SIMPLE IRA: predictable and easy

Employees save from their paychecks and the business must contribute every year — either a dollar-for-dollar match up to 3% of pay or 2% of pay for everyone eligible. A new SIMPLE IRA generally must be set up by October 1 to cover that year, and it usually has to be the employer's only plan.

401(k): the most room to save and design

A 401(k) has the highest limits and the most flexibility — vesting schedules, profit sharing, Roth options and loans. The trade-off is annual nondiscrimination testing, which a safe harbor design can avoid. Many small businesses start with a SIMPLE IRA and move to a 401(k) as they grow.

Four questions that usually decide it

  1. How much does the owner want to save each year?
  2. Do employees want to save their own money?
  3. Is the business's cash flow steady enough for a required contribution?
  4. How much administration are you willing to own?

Want to see what this means for your business?

Tell us a little about your team and goals and Samah will reply within one business day.

Request a complimentary plan review

General educational information as of September 22, 2026; limits and rules change. Not individualized investment, tax or legal advice. Consult your tax adviser about your situation.