Offering a 401(k) retirement savings plan with all the bells and whistles is the hope for most business owners. However, offering such benefits may unfeasible for small business with lean budgets and small staffs. Affordable retirement plan options that are easier to administer include SEP IRAs and SIMPLE IRAs. Take a look at these overviews of each plan and see if one of these options work for your workforce.
SEP: Flexible & Zero Setup Fees
Simplified Employee Pension (SEP) IRAs are individual retirement accounts you establish on behalf of each participant. (Self-employed individuals can also establish SEP IRAs). Participants own their accounts, so they’re immediately 100% vested. If participants decide to leave your company, their account balances go with them. Most people roll their accounts over into a new employer’s qualified plan or traditional IRA account.
SEP IRAs don’t require annual employer contributions. That means you can choose to contribute only when cash flow allows. In addition, there are typically no setup fees for SEP IRAs. But participants generally must pay trading commissions and fund expense ratios (a fee typically set as a percentage of the fund’s average net assets).
In 2026, the SEP IRA annual contribution limit is 25% of a participant’s compensation, up to $72,000. That amount is higher than the standard 401(k) account contribution limit of $24,500 (in 2026). What’s more, employer contributions are tax-deductible. Meanwhile, participants won’t pay taxes on their SEP IRA funds until they’re withdrawn.
However, there are a few downsides to consider. Although participants own their accounts, only employers can make SEP IRA contributions. And if you contribute sparsely or sporadically, participants may see little value in the accounts. Also, unlike many other qualified plans, SEP IRAs don’t permit participants age 50 or over to make additional “catch-up” contributions.
SIMPLE: Easy & Participant-Friendly
Another possibility is to offer a Savings Incentive Match Plan for Employees (SIMPLE) IRA. As with a SEP IRA, your business creates a SIMPLE IRA for each participant, who’s immediately 100% vested in the account. Unlike SEP IRAs, SIMPLE IRAs allow participants to contribute to their accounts if they choose.
Other advantages of SIMPLE IRAs include:
- They’re relatively easy for employers to set up and administer.
- They don’t require your business to file IRS Form 5500, “Annual Return/Report of Employee Benefit Plan.”
- You don’t need to submit the plan to nondiscrimination testing.
- Participants pay no setup fees and enjoy tax-deferred growth on their account funds.
- Participants can contribute up to $17,000 annually in 2026.
- Participants age 50 or over can make catch-up contributions of up to $4,000 in 2026 ($5,250 for those ages 60 to 63).
Participants can contribute more to a SIMPLE IRA than to a self-owned traditional or Roth IRA. But SIMPLE IRA contribution limits are lower than limits for 401(k)s. Also, because contributions are made with pretax dollars, participants can’t deduct them. They also can’t take out plan loans. Then again, making pretax contributions does lower their taxable income. Perhaps most important is that employer contributions to SIMPLE IRAs are mandatory, regardless of your cash-flow situation. However, in general, you can deduct contributions as a business expense.
SIMPLE Roth IRAs are available, too. Ask your financial and employee benefits advisors whether this might be a better option for your business.
Lower-Cost Options
If you’ve thought you can’t afford to offer workers a retirement plan, think again. In addition to SEP and SIMPLE IRAs, there are now some lower-cost 401(k) options available as well. We can review your budget, tax situation, and benefit needs and suggest how best to proceed. Contact us.
