Two women working at their small business

SEP/SIMPLE Comparison Chart

  SEP IRA SIMPLE IRA
Eligible Employers All taxable businesses, including small business owners with limited number of employees and independent contractors

Government entities

Tax-exempt organizations
Has no more than 100 employees who earned at least $5,000 in previous year

All taxable businesses, including small business owners with limited number of employees and independent contractors

Government entities

Tax-exempt organizations 
Eligible Employees Employees who performed service for the employer in three of the past five years and are age 21 or older may be eligible if they earn $650 (indexed) in the plan year. Certain employees may be excluded. Any employee earning at least $5,000 during any two preceding years and who is expected to earn $5,000 in the current year is eligible. Certain employees may be excluded.
Required Employer Contribution None, unless plan is Top Heavy (see Top Heavy Plans below)  Each year, employer must select either:

Match – Dollar-for-dollar match of first 3% of compensation contributed by employees (3% may be lowered to 2% or 1% in any two of five years).

Non-Elective – 2% of compensation for all eligible employees.
Maximum Deductible Contribution The lesser of: 25% of employee’s compensation (self-employed Schedule C filer uses modified net business income) or $58,000. Compensation is capped at $290,000. Match Formula – $27,000 ($13,500 deferral plus $13,500 match). $33,000 if age 50 or older (includes $3,000 catch-up deferral plus $3,000 match).*

Non-Elective – $13,500 (plus $3,000 catch-up if age 50 or older) deferral plus $5,800, which is 2% of compensation, capped at $290,000. Self-employed Schedule C filer uses modified net business income to determine compensation. 
Maximum Employee Deferral No deferrals allowed $13,500, plus $3,000 catch-up if age 50 or older
Vesting 100% immediate 100% immediate
Advantages Minimal paperwork

Minimal administration expenses

No annual 5500 reports

Employer contributions are discretionary each year

$6,000 ($7,000 if age 50 or older) traditional IRA contributions for 2021 can be deposited in SEP IRA

No formal termination required
Minimal paperwork

Minimal administration expenses

No annual 5500 reports

Owners can maximize deferrals regardless of employee participation

Deferrals reduce participant’s taxable income

No formal termination required 
Top Heavy Plans Employers must make a minimum contribution of 3% of compensation to Non-Key employees for the years a plan is Top Heavy (total value of Key Employees’ accounts is > 60% of value of all accounts).** Not applicable
Establishment Deadline Tax filing deadline (plus extension) October 1, 2021

* In order to receive a full $13,500 match, compensation must exceed $450,000. In order to receive a full $16,500 match (for individuals age 50 or older), compensation must exceed $550,000. This is based on a 3% of compensation employer match.

** Key Employees include: 1) a 5% or greater owner of the company, 2) a 1% owner having annual compensation >$150,000, or 3) an officer with compensation >$185,000.

Stifel does not provide tax advice. You should consult with your professional tax advisor regarding your particular situation.

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