Comparing SEP vs. SIMPLE Retirement Plans


A Simplified Employee Pension Plan is an individual retirement account for a self employed person or a small company with less than 25 employees. This plan allows employers to contribute on behalf of eligible employees. All contributions are tax deductible as a business expense and can be integrated with Social Security contributions, and there is no minimum contribution requirement. 


The Savings Incentive Match Plan for Employees is a retirement plan sponsored by employers. These programs are attractive for employers because they don't incur many of the administrative fees and paperwork of plans such as the 401(k). Employers also benefit from the tax-deductible contributions to the plan. Employees may elect to have salary deferrals to contribute to the plan.


As an employer, contributions to employees' SIMPLE accounts are tax-deductible, which make these plans very attractive.

For participants, their contributions are tax-deductible, and the earnings can grow tax-deferred until withdrawal. A SIMPLE account can be rolled over into a traditional IRA tax-free after the first two years. If it has been two years since the employee left the company, the SIMPLE account is treated as a traditional IRA.

Matching contributions by an employer and non-elective contributions are not subject to employment taxes such as FICA and Medicare. However, if the participant is self-employed, these contributions are subject to self-employment taxes.
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Copyrighted 2015. Content published with author's permission.

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