Are you a small business owner exploring retirement plans for yourself and your team—but hesitant about high costs and complex administrative requirements? Fortunately, there are two affordable, low-maintenance retirement options designed specifically for small businesses: the Simplified Employee Pension (SEP) IRA and the Savings Incentive Match Plan for Employees (SIMPLE) IRA.
Let’s break down the benefits of each to help you choose the best fit for your business.
What is a SEP IRA?
A SEP IRA is a tax-deferred retirement plan that’s easy to set up and manage. It’s ideal for small businesses or self-employed individuals who want flexibility in annual contributions. One major benefit? You’re not locked into contributing every year. You decide whether or not to make contributions based on your financial situation.
To get started, you can adopt the IRS’s Form 5305-SEP, a model plan that doesn’t require IRS approval or filing. Once set up, you can make tax-deductible contributions to your employees’ SEP-IRAs, which are owned and controlled by the employees themselves. These contributions grow tax-free until retirement.
2025 SEP IRA Contribution Limits:
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The lesser of 25% of compensation or $70,000 per employee
Unlike traditional IRAs, the SEP IRA has a much higher contribution limit, and your contributions aren’t capped by the traditional IRA deduction limits. Just keep in mind: all eligible employees must be included, and contributions must be nondiscriminatory.
SEP IRAs are significantly easier to manage than traditional qualified pension plans. No annual IRS filings are required, and recordkeeping can be handled by a financial institution such as a bank or mutual fund company.
What is a SIMPLE IRA?
A SIMPLE IRA is another great choice for businesses with 100 or fewer employees. It’s especially useful if you want to encourage employees to contribute to their own retirement through a salary deferral program.
Each eligible employee sets up their own SIMPLE IRA, and the employer makes matching contributions based on employee salary deferrals—up to 3% of their compensation—or a 2% non-elective contribution for every eligible employee.
2025 SIMPLE IRA Contribution Limits:
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Employee deferral limit: $16,500
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Catch-up contribution (age 50+): $3,500
You can also opt for a SIMPLE 401(k), which provides similar features with the added benefit of avoiding complicated nondiscrimination testing typical of traditional 401(k) plans.
SEP vs. SIMPLE IRA: Which Is Right for Your Business?
Both SEP and SIMPLE IRAs are excellent retirement planning tools for small business owners:
SEP IRA Benefits:
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High contribution limits
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Flexible funding decisions
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Minimal paperwork
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No IRS annual filing
SIMPLE IRA Benefits:
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Employee participation through salary deferrals
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Employer matching encourages employee engagement
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Lower administrative costs than a 401(k)
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No annual IRS filings
Choosing between a SEP IRA and a SIMPLE IRA depends on your business size, income structure, and how involved your employees are in their retirement planning. Both plans offer valuable tax advantages, simple setup, and reduced administrative burdens—making them attractive alternatives to traditional retirement plans.
Have questions about which plan is right for your small business in 2025? Contact us today to schedule a consultation and create a custom retirement plan strategy that fits your goals.
