Denise Appleby’s comparison summary of SEP IRA vs SIMPLE IRA vs SIMPLE 401(k) Plans : Table reflects 2023 Plan Limits
| Feature/ Benefit | SEP IRA Plan | SIMPLE IRA Plan | SIMPLE 401(k) Plan |
| Eligible Employer | Any employer.
Employers who use the services of leased employees or maintain any other retirement plan cannot use the form 5305- SEP, but may use a prototype or individually designed SEP. |
Any employer, providing the employer had no more than 100 employees with $5,000 or more in compensation during the preceding year.
Generally, the SIMPLE IRA must be the only plan maintained by the employer.
‘Exclusive plan rule’ applies
|
Any employer, providing the employer had no more than 100 employees with $5,000 or more in compensation during the preceding year.
‘Exclusive plan rule’ applies |
| Age Requirement | Can exclude employees under age 21 | N/A | Can exclude employees under age 21 |
| Service and compensation requirement | Must include employees who worked 3 of the 5 preceding years.
A year of service is any work performed during the year, however short a period. Can exclude employees who earn less than $750 during the year. |
Must include employees who received at least $5,000 in compensation during any 2 preceding calendar years (whether or not consecutive) and are reasonably expected to receive at least $5,000 in compensation during the calendar year. | Must include employees who have performed at least one year of service. A year of service can be defined as up to 1,000 hours of service during a 12-month period.
For part-timers with <1,000 hrs.: 500 hours per year for at least three consecutive years. |
| Salary deferral allowed | Not for 5305- SEP. Up to $22,500 + catch- up of $7,500 may be allowed under SARSEPs. As of 01/01/97, new SARSEPs may not be created. | Yes. Up to $15,500 + catch- up of $3,500 | Yes. Up to $15,500 + catch- up of $3,500. |
| Limitation on Compensation that can be used to calculate plan contributions
|
Compensation cap of $330,000 | Compensation cap of $330,000 applies only to employer 2% non-elective contribution | Compensation cap of $330,000 |
| Corporate Deductible limit
|
25% of eligible compensation of all eligible employees
|
Up to the SIMPLE IRA contribution amounts. NTE allowed contribution | Up to the SIMPLE 401(k)’s contribution amounts. NTE allowed contribution. |
| Maximum contributions allowed for employee | Lesser of 25% of employee’s compensation or $66,000 | $15,500 deferral + catch-up of $3,500 + employer match of dollar for dollar up to 3% of compensation | $15,5000 deferral + catch-up of $3,500 + employer match of dollar for dollar up to 3% of compensation |
| Vesting of
Contributions
|
100% immediate vesting | 100% immediate vesting | 100% immediate vesting |
| Deadline to
Establish Plan
|
Employer’s tax filing deadline, including extensions | October 1. Except for businesses
that are created after October 1, for which the plan must be established as soon as administratively feasible.
|
October 1. Except for businesses
that are created after October 1, for which the plan must be established as soon as administratively feasible. Special rules apply. See Sec. 1.401(k)-4. |
| Loans | No | No | Yes |
| 5500 Filing | N/A | N/A | N/A |
| Deadline for making/depositing contributions
|
Employers tax filing deadline,
including extensions. |
Salary deferrals- as soon as
contributions can reasonably be segregated from the employer’s general assets.[1]
Employer contributions – employer’s tax filing deadline, including extensions. |
Salary deferrals- as soon as such
contributions can be reasonably segregated from the employer’s general assets.[2]
Employer contributions –by the employer’s tax filing deadline, including extensions |
| Non-discrimination testing | N/A | N/A | N/A |
| Complexity | Low | Low | Low |
| Administrative cost | Low | Low | Low |
| Notable notes | Gives business that has not established a profit pattern or one that experiences fluctuation in profits, flexibility due to discretionary contribution feature. | Employers often overlook the annual notification requirements that apply to SIMPLEs, resulting in them being subject to penalties. | These have not been popular, as employers often choose either the SIMPLE IRA or the safe-harbor 401(k) instead, possibly because the desired features are usually in either of the two. |
| Ideally suited for … | Employers that are looking for a plan that is easy/inexpensive to administer, has a discretionary feature for contributions, contributions are immediately 100% vested, and does not mind, that employees can take their contributions at any time. | Employers that are looking for a plan that is easy/ inexpensive to administer, has a mandatory feature for employer contributions, allows employees to share the cost of funding their accounts, contributions are immediately 100% vested, and does not mind, that employees can take their contributions at any time. | Employers that are looking for a plan that is easy/ inexpensive to administer, has a mandatory feature for employer contributions, allows employees to share the cost of funding their accounts, and does not mind, that employer contributions are 100% immediately vested, though employees must wait for a triggering event to take distributions. |
[1] No later than 30 calendar days following the month to which the deferral applies. The 30-day period is the latest deadline, and applies only if the assets cannot be segregated sooner.
[2] No later than the 15th business day of the month, following the month to which the deferral applies. The 15th business day is the latest deadline, and applies only if the assets cannot be segregated sooner. Plans with fewer than 100 participants as of the beginning of the plan year, may remit salary deferrals within 7 business days
