SIMPLE IRA vs SEP IRA for self-employed workers

SIMPLE vs SEP vs Solo 401(k)

In 2026 a SIMPLE IRA generally allows a $17,000 salary deferral, plus a $4,000 catch-up at 50+ or $5,250 at ages 60–63. The employer generally matches up to 3% or makes a 2% nonelective contribution. A SEP IRA is employer money only, up to 25% of compensation and $72,000. A Solo 401(k) combines a $24,500 deferral with an employer contribution, same $72,000 cap, and does not require you to cover non-spouse employees because it cannot have them.

Source: https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-simple-ira-contribution-limits and https://www.irs.gov/pub/irs-drop/n-25-67.pdf.

When a SIMPLE IRA makes sense

A SIMPLE IRA is built for a small employer, including a self-employed person, and it can cover employees. A new SIMPLE plan generally has to be set up by October 1 of the year it starts. A SEP can often be opened and funded up to the tax filing deadline, including extensions. If you have no employees and want the larger deferral, a Solo 401(k) usually allows more than a SIMPLE at the same profit.

Worked example, hypothetical

At $40,000 of net self-employment earnings, a sole proprietor's SEP is about 20%, or $8,000. A SIMPLE deferral can be up to $17,000, which is more than $8,000, before the required employer contribution. At $80,000, the SEP approximation is about $16,000, close to the SIMPLE deferral, and a Solo 401(k) can add the $24,500 deferral on top of an employer contribution. These are illustrations using the Publication 560 approximation, not a completed return.