Compare IRAs
SEP IRA
SIMPLE IRA
Advantages
  • Simple to establish and maintain
  • No annual IRS Form 5500 filing requirements as with a profit sharing plan (often called a Keogh plan)—if for a sole proprietor
  • Contributions deductible by employer
  • Simple to establish and maintain
  • No annual IRS Form 5500 filing requirements as with a 401(k) plan
  • Contributions deductible by employer
  • No discrimination testing or top-heavy rules as in a 401(k)
  • Some funding responsibility with employees (match or 2% contribution)
  • Deferral reduces taxable income of employee
Who Can Establish?
  • Corporations, sub-chapter S, self-employed, sole proprietorships, partnerships, non-profit (not eligible for salary deferral)
  • Employers with no more than 100 employees who earned $5,000 or more during preceding calendar year (cannot maintain another retirement plan)
Who Can Contribute?
  • Employer contributes to employee IRA accounts established under the SEP
  • The employee/employer may also make their traditional IRA contributions to the same IRA account
  • Employer sends salary deferral contributions as directed by the employee to the employee’s IRA account established under the SIMPLE plan
  • Employer either matches the employee’s salary deferral up to the first 3% OR makes a 2% employer contribution to all eligible employees
Maximum Eligibility Requirements
  • Worked for employer during any period of three of the last immediately preceding five years, however short
  • At least 21 years of age
  • $550 annual compensation
  • $5,000 in compensation for any two preceding years and is expected to earn $5,000 in current years
Withdrawals
  • Required minimum distributions as late as April 1 following the year in which the individual reaches age 70½
  • Withdrawals prior to age 59½ are subject to a 10% premature withdrawal additional tax
  • Required minimum distributions as late as April 1 following the year in which the individual reaches age 70½
  • Withdrawals taken within two years of joining the plan will result in a 25% premature withdrawal additional tax
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