Simple Retirement Solutions for
Small Business Owners

Offering a retirement plan is one of the best ways to attract and retain talented employees while helping yourself save for the future. However, many small business owners hesitate because they assume retirement plans are expensive, complicated, and loaded with IRS paperwork.

Fortunately, that’s not always the case.

For many small businesses, two of the easiest and most tax-efficient retirement plan options are the Simplified Employee Pension (SEP) IRA and the Savings Incentive Match Plan for Employees (SIMPLE) IRA. Both plans offer valuable tax advantages, but they work differently and are designed for different business needs.

Let’s take a closer look at each option to help determine which may be the best fit for your business.

What Is a SEP IRA?

A Simplified Employee Pension (SEP) IRA is one of the easiest retirement plans available for business owners.

Unlike many traditional retirement plans, a SEP IRA requires very little administration. There are no annual IRS reporting requirements, making it an attractive choice for small businesses that want a simple retirement solution.

To establish a SEP IRA, employers generally complete IRS Form 5305-SEP, retain it in their records, and open SEP IRA accounts through a qualified financial institution.

SEP IRA Contribution Limits

One of the biggest advantages of a SEP IRA is its generous contribution limit.

For 2026, employers may contribute the lesser of:

• 25% of an employee’s compensation, or
• $72,000 per employee

Employer contributions are generally tax-deductible, helping reduce the business’s taxable income while building retirement savings for employees.

Important SEP IRA Rules

Although SEP IRAs are simple to administer, there are several important rules to understand.

Employer Contributions Only

With a SEP IRA:

• Employees cannot contribute through payroll deductions.
• The employer makes all retirement contributions.

Equal Contribution Percentage

If the employer contributes a certain percentage of compensation for themselves, they generally must contribute the same percentage for all eligible employees.

For example, if you contribute 20% of your own compensation, eligible employees must generally receive the same 20% contribution.

Roth SEP IRA Contributions

A relatively recent enhancement allows employers to offer Roth SEP IRA contributions.

Instead of making traditional pre-tax SEP contributions, eligible employees may be able to receive employer contributions into a Roth IRA on an after-tax basis.

The potential benefit?

Although employees pay taxes on those contributions today, qualified withdrawals during retirement may be completely tax-free.

Keep in mind that not all financial institutions currently support Roth SEP IRA contributions, so it’s important to confirm availability before implementing this feature.

What Is a SIMPLE IRA?

If you’d like employees to save for retirement using payroll deductions, a SIMPLE IRA may be the better choice.

A SIMPLE IRA is designed specifically for businesses with 100 or fewer employees and offers an easy alternative to a traditional 401(k).

Unlike a SEP IRA, employees can contribute part of their own salary directly into the retirement plan.

SIMPLE IRA Contribution Limits

For 2026, employees may contribute up to:

• $17,000 through salary deferrals

Employees who meet the age requirements may also qualify for additional catch-up contributions.

Employer Contribution Requirements

Unlike a SEP IRA, a SIMPLE IRA requires employers to make annual contributions.

Employers generally have two options:

Option 1: Matching Contribution

Match employee contributions dollar-for-dollar up to 3% of compensation.

Option 2: Nonelective Contribution

Contribute 2% of compensation for all eligible employees, regardless of whether they choose to contribute themselves.

This flexibility allows businesses to choose the contribution structure that best fits their budget.

Why Many Small Businesses Choose SIMPLE IRAs

SIMPLE IRAs offer several advantages, including:

• Easy administration
• Minimal paperwork
• No complex nondiscrimination testing required for traditional 401(k) plans
• Employee salary deferrals
• Employer tax deductions
• Valuable retirement benefits for employees

For growing businesses, a SIMPLE IRA can provide an excellent balance between affordability and employee satisfaction.

SEP IRA vs. SIMPLE IRA

Which Plan Is Right for Your Business?

Choosing between a SEP IRA and a SIMPLE IRA depends on several factors, including:

• Your business’s cash flow
• Number of employees
• Whether employees want to contribute through payroll deductions
• Your retirement savings goals
• Your overall compensation strategy

Business owners who want maximum flexibility in employer-funded retirement savings often prefer a SEP IRA.

Businesses looking to encourage employee participation while keeping administration simple often find the SIMPLE IRA to be a better fit.

Conclusion

Offering a retirement plan isn’t just a valuable employee benefit—it can also provide significant tax savings for your business while helping you build your own retirement wealth.

Both SEP IRAs and SIMPLE IRAs offer straightforward administration, tax advantages, and flexible retirement savings opportunities. The key is selecting the plan that aligns with your business goals and long-term financial strategy.

If you’re considering offering a retirement plan for your business, contact Guerrero CPA at 210-490-7100. Our experienced team can evaluate your payroll, business structure, and financial goals to help you choose the retirement plan that’s right for you and your employees.