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 $750 (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 $66,000. Compensation is capped at $330,000. | Match Formula – $31,000 ($15,500 deferral plus $15,500 match). $38,000 if age 50 or older (includes $3,500 catch-up deferral plus $3,500 match).* Non-Elective – $15,500 (plus $3,500 catch-up if age 50 or older) deferral plus $6,600, which is 2% of compensation, capped at $330,000. Self-employed Schedule C filer uses modified net business income to determine compensation. |
| Maximum Employee Deferral | No deferrals allowed | $15,500, plus $3,500 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 $6,500 ($7,500 if age 50 or older) traditional IRA contributions for 2023 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, 2023 |
* In order to receive a full $15,500 match, compensastion must exceed $466,667. In order to receive a full $22,000 match (for individuals age 50 or older), compensation must exceed $566,667. This is based on a 3% of compensastion 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 >$215,000.
Stifel does not provide tax advice. You should consult with your professional tax advisor regarding your particular situation.
1122.5082712.1