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SR Client Question – What is the difference between a SEP IRA and a SIMPLE IRA?

[1]SEP IRAs (simplified employee pension individual retirement arrangement) and SIMPLE IRAs (savings incentive match plan for employees individual retirement arrangement) are retirement plan options geared toward small businesses.  Both types of plans are easy to administer and require no annual reporting to the IRS.  However, there are differences to consider in determining which is best for your business.

Employer Contributions:

Note that with the first option the employer matches contributions made by employees, so if an employee does not contribute, the employer match is zero.  But with the second option the employer would be required to fund contributions for all employees regardless of whether or not they contribute to the plan.

Employee Contributions:

You must also consider if the business has any other types of retirement plans.  With SEP IRA’s the employer may offer other types of retirement plans, but this is not allowed with a SIMPLE IRA plan.  Also, if interested in starting a SIMPLE IRA, it must be established by October 1st to be in effect for that particular year.

What type of retirement plan is best for your business can be difficult to determine.  Be sure to consult your business advisor at ShindelRock [2] to help you weigh the options that are best for you.