What  are SEP and SIMPLE IRAs?

What is a SEP IRA?

A Simplified Employee Pension (SEP) is a written plan that allows small-business owners to make retirement contributions to traditional IRAs (SEP IRAs) set up for themselves and for each eligible employee.

These contributions may be deducted from your business income and excluded from your employees' income. A SEP IRA may not only provide you a tax-advantaged way to save for your own retirement, but may also help you attract and retain qualified employees by providing for their retirements. It may help your business avoid some of the complexities posed by certain other employer-sponsored retirement plans.

Who can establish a SEP IRA?

You can establish a SEP IRA if you are an employer or you have self-employment income. "Employer" includes a sole proprietor, a partnership, a C corporation, an S corporation, a limited liability company, and a limited liability partnership. You do not need employees to set up a SEP IRA, but if you do have them, all eligible employees must be included as SEP IRA participants.

How much can I contribute to a SEP IRA?

IRS guidelines set the limits employers can contribute to an employee's SEP IRA each year. This year's guidelines are available in our SEP IRA Fact Sheet. If you are self-employed, contributions to your own SEP IRA are calculated differently. Your compensation is considered your net earnings from self-employment less the deduction for contributions to your SEP IRA and the deduction allowed to you for one-half of the self-employment tax. A SEP IRA may not only provide you with a tax-advantaged way to save for your own retirement, but may also help you attract and retain qualified employees by providing for their retirements.

What is a SIMPLE IRA?

A Savings Incentive Match Plan for Employees (SIMPLE) IRA makes it easy for small businesses to provide a retirement plan for their employees. These low-maintenance plans are inexpensive and straightforward to set up.

Who can establish a SIMPLE IRA?

SIMPLE IRAs offer a plan for small employers (with 100 employees or less) that is easy to administer and more cost effective than 401(k) plans. With a SIMPLE plan, employers promise to match employee contributions dollar-for-dollar up to 3% of pay, or to make a non-elective contribution for all eligible employees, whether or not they contribute, equal to 2% of pay. It’s important to note that the employer can only contribute a maximum of 3% per employee per year.

How much can your employees contribute?

A SIMPLE IRA plan lets your employees defer a portion of their compensation and make additional contributions if the employee is age 50 or older. The amount an employee can contribute is set by the IRS each year. View this year's guidelines in our SIMPLE IRA Fact Sheet. SIMPLE IRA plans allow for pre-tax contributions, tax-deferred investing with no discrimination testing, and no plan administrative fees.


For more information on setting up a SEP IRA or SIMPLE IRA plan, contact us at 800.888.2461, option 3.

The information presented here is not specific to any individual's personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice. 

Security Benefit Corporation and its affiliates are not fiduciaries and the information provided is not intended to be investment advice. This information is general in nature and intended for use with the general public. For additional information, including any specific advice or recommendations, please visit with your financial professional. 

SB-10015-49 | 2023/01/11