What is the SIMPLE IRA contribution limit for 2026?

The SIMPLE IRA employee contribution limit for 2026 is $17,000 ($18,100 for SIMPLE plans at employers with 25 or fewer employees). The age 50+ catch-up is $4,000 (or $5,000 for small employers), and workers aged 60–63 get a SECURE 2.0 super catch-up of $5,250.

What is the SEP IRA contribution limit for 2026?

The SEP IRA contribution limit for 2026 is $72,000, or 25% of W-2 compensation (approximately 20% of net self-employment income). The compensation used is capped at $360,000.

Which is better for small business — SEP IRA or SIMPLE IRA?

It depends on your goals. The SEP IRA allows much higher maximum contributions (up to $72,000) and only requires employer contributions. The SIMPLE IRA allows employees to contribute from their own paycheck (up to $17,000) but requires either a 3% employer match or 2% non-elective contribution for all eligible employees. If you're the sole owner with high income wanting to maximize savings, the SEP IRA (or Solo 401k) wins. If you want to offer employees a salary-deferral benefit at lower cost, the SIMPLE IRA is simpler to administer.

Is there a 25-employee limit for SIMPLE IRA?

SIMPLE IRAs are designed for employers with 100 or fewer employees who earned at least $5,000. Employers with 25 or fewer employees qualify for higher contribution limits under SECURE 2.0 ($18,100 vs $17,000 in 2026).

SEP IRA vs SIMPLE IRA 2026: Side-by-Side Comparison

Side-by-Side

Full Feature Comparison

Feature	SEP IRA	SIMPLE IRA
2026 Maximum Contribution	$72,000	$17,000 employee + employer match
Age 50+ Catch-Up	No standard catch-up	+$4,000
Super Catch-Up (Age 60–63)	+$11,250	+$5,250
Employee Salary Deferral	No	Yes ✓ — up to $17,000
Employer Contribution	Up to 25% of W-2 / 20% of net SE	3% match OR 2% non-elective for all
Employer Contribution Flexible?	Yes ✓ — 0% to 25%	Must make one of two required contributions
Max Eligible Employees	Unlimited	≤ 100 employees (earned $5,000+)
Higher Limits for Small Employers	N/A	Yes — ≤25 employees: $18,100 deferral limit
Early Withdrawal Penalty	10%	25% in first 2 years! 10% after 2 years
Roth Option Available	Yes (SECURE 2.0)	Yes (SECURE 2.0)
IRS Annual Filing	None ✓	None ✓
Contribution Deadline	Tax filing deadline incl. extensions	Employee: per payroll; Employer: 30 days after period end
RMD Start Age	Age 73	Age 73
Compensation Limit	$360,000	N/A for employee deferral

SIMPLE IRA Rules

SIMPLE IRA Employer Requirements

Every employer with a SIMPLE IRA must make one of two mandatory contributions every year.

Option	Description	Best When
Option A — 3% Match	Match each participating employee's deferral up to 3% of their compensation	Most employees don't participate or participate at low rates
Option B — 2% Non-Elective	Contribute 2% of compensation for ALL eligible employees, whether or not they defer	Employees aren't contributing but you want them to benefit

⚠️ Unlike the SEP IRA, the employer cannot skip contributions to the SIMPLE IRA. The 3% match can be temporarily reduced to 1% (up to 2 of any 5 years), but employer contributions are mandatory.

Strengths & Weaknesses

Pros & Cons

🧾 SEP IRA

Pros

Massive contribution limit — up to $72,000 in 2026
Employer contributions fully discretionary — contribute 0% in bad years
Extended contribution deadline (can fund last year's SEP via tax extension)
Very easy to set up — many brokerages in minutes
Unlimited number of employees can be covered
SECURE 2.0 super catch-up at 60–63

Cons

Employer only — employees cannot make their own salary deferrals
All eligible employees must receive the same contribution percentage — expensive with staff
No separate catch-up for ages 50–59
Immediate vesting for all employees (can be a drawback vs 401k vesting schedules)

🏦 SIMPLE IRA

Pros

Employees can defer their own salary — shared savings responsibility
Age 50+ catch-up allowed ($4,000), plus SECURE 2.0 super catch-up for 60–63
Lower mandatory employer cost than a full 401(k)
Easy IRS setup (Form 5304-SIMPLE or 5305-SIMPLE)
Good for attracting employees — they can see their own deferrals

Cons

Employee limit cap ($17,000) is much lower than SEP IRA ($72,000)
Mandatory employer contributions — no discretion
Only available to employers with ≤100 employees
25% early withdrawal penalty in first 2 years — very punitive
Cannot contribute to another employer plan in same year (e.g., can't also have a 401k)

Decision Guide

Which Plan Is Right for Your Business?

Choose SEP IRA if…

You're self-employed or have a very small business and want maximum savings
You want complete flexibility to contribute 0% in lean years
You want to contribute after the year ends (via tax extension)
You have employees but are comfortable contributing the same % for everyone
You want simplicity with no mandatory contributions
You're the sole owner with income over $90k (SEP often outperforms at high incomes)

Choose SIMPLE IRA if…

You want employees to be able to contribute from their own paycheck
You have ≤100 employees and want a low-cost alternative to a full 401(k)
You want to offer a retirement benefit that attracts and retains employees
You're comfortable with mandatory employer contributions
You're okay with lower overall contribution limits
You want employees to have a catch-up contribution option (age 50+)

⚠️ SIMPLE IRA 25% penalty warning: If you or your employees withdraw funds from a SIMPLE IRA within the first 2 years of participation, the penalty is 25% — not the standard 10%. This is one of the harshest early withdrawal penalties in retirement account law. Communicate this clearly to employees before they enroll.

FAQ

Common Questions

Can a self-employed person have a SEP IRA and a SIMPLE IRA?

Generally no. If you have a SIMPLE IRA plan established for a business, you generally cannot also make contributions to a SEP IRA for the same business in the same year. However, if you have income from a completely separate business, you may be able to maintain separate plans. Consult a tax advisor.

Can I roll over a SIMPLE IRA?

Yes, but only after 2 years of plan participation. Within the first 2 years, a SIMPLE IRA can only be rolled over to another SIMPLE IRA. After 2 years, it can be rolled to a Traditional IRA, SEP IRA, Solo 401(k), or other eligible plan. Rolling early would trigger the 25% penalty plus taxes on the entire amount.

Does the SEP IRA require immediate vesting for employees?

Yes. SEP IRA contributions are immediately 100% vested — employees own their account balance from day one. This differs from some 401(k) plans that can have multi-year vesting schedules. For employers trying to incentivize retention, this is a drawback; for employees, it's a benefit.

What is the SIMPLE IRA 3% match reduction rule?

Employers using the 3% matching option can temporarily reduce it to as low as 1% — but only for 2 out of every 5 years. The employer must notify employees of the reduced rate at least 60 days before the start of the year. This provides some flexibility in difficult years without losing the plan entirely.