SIMPLE IRA vs. SEP IRA vs. 401(k): Choosing the Right Plan
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.
| 2026 | SEP IRA | SIMPLE IRA | 401(k) |
|---|---|---|---|
| Employee deferrals | None — 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 contribution | Discretionary; same % of pay for every eligible employee, up to 25% of pay | Required: 3% match or 2% of pay for all eligible | Flexible: match, profit sharing, or safe harbor |
| Max total per person | $72,000 | Deferral + employer amount | $72,000 plus catch-up |
| Testing | None | None | Annual testing unless safe harbor |
| Paperwork & cost | Lowest | Low | Highest, most flexible |
| Best fit | Owner-only or very small teams with uneven profits | Up to 100 employees wanting simple, predictable costs | Owners 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
- How much does the owner want to save each year?
- Do employees want to save their own money?
- Is the business's cash flow steady enough for a required contribution?
- How much administration are you willing to own?
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Request a complimentary plan reviewGeneral 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.