For businesses that find a 401(k) heavier than they need, the two workhorse alternatives are the SEP IRA and the SIMPLE IRA. Both are light on administration; they point in different directions.
SEP IRA: employer-funded, flexible, owner-friendly
Only the employer contributes, up to 25% of compensation with a generous dollar cap. The key flexibility: you can vary the percentage year to year — contribute heavily in a good year, skip a lean one. The catch: whatever percentage you contribute for yourself, you must contribute for every eligible employee. That makes SEPs shine for owner-only businesses, spouses on payroll, and firms with few employees and variable profits.
SIMPLE IRA: employee deferrals plus a required match
Employees defer their own pay, and the employer commits to either a 3% match or a 2% flat contribution. Available to businesses with up to 100 employees. Contribution limits are lower than a 401(k)'s, but so is the administrative load. SIMPLEs fit teams where employees want to save and the owner wants a predictable, modest benefit cost.
The quick heuristic
Mostly funding your own retirement? SEP. Building a benefit your team contributes to? SIMPLE. Outgrowing both — wanting Roth options, loans, or bigger deferrals? That's the signal to price a 401(k).
Deadlines differ too: SEPs can be opened and funded up to your tax filing deadline, while SIMPLEs generally must be established by October 1 for the current year. Run the comparison on your actual payroll before deciding.
