Which plan is best for your company?
Small business owners have a number of retirement plan options to choose from. At Saturna, we believe SEP-IRA, SIMPLE-IRA, and 401(k) Plans offer employers great "Value for Your Money" because of their low cost and easy operation.
The plans have a few major distinctions:
The SEP-IRA is funded by employer contributions only, and is the simplest plan to implement. The business contributes the same percentage of compensation for all eligible employees.
The SIMPLE-IRA is funded by employee elective salary deferrals and flexible employer contributions. Employees have an opportunity to defer part of their salary to fund their retirement plans on a tax-advantaged basis.
401(k) Plans offer similar tax advantages on employee salary deferrals, but also offer enhanced administrative options, higher employee contribution limits, vesting schedule for optional employer contributions, available Roth contributions, plus more.
Employer IRA vs. 401(k) Comparison
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| SEP-IRA | SIMPLE-IRA | 401(k) | |
| Eligible Employers | Any self-employed individual, business owner, or individual who earns more than $600 self-employed income | Businesses with 100 or fewer eligible employees and who do not currently maintain any other retirement plan | Generally, any business may establish a 401(k) |
| Key Advantages | Easy to set up and maintain; flexible annual funding requirements | Salary deferral plan with less administration than a 401(k) | Salary deferral plan with higher contribution limits; profit sharing, Roth accounts, loans and deferred vesting available |
| Funding Responsibility | Employer contributions only | Funded by salary deferral and employer contributions | Funded by salary deferral and employer contributions, if elected under the plan; employer profit sharing |
| Contribution Flexibility | Contributions are discretionary | Employer contributions are mandatory | Employer matching contributions, if elected under the plan, are mandatory; profit-sharing contributions are discretionary |
| Maximum Annual Contribution Per Employee | Employer: The lesser of $69,000 for 2024, and $70,000 for 2025, or 25% of annual compensation (25% of self-employed income) | Employee: Employer: | Employee: Employer: Overall maximum contribution (from all sources) is 100% of compensation, not to exceed $69,000 for 2024, and $70,000 for 2025 (plus catch-ups) |
| Catch-up Contributions | None | 2024: $3,500 for ages 50 and up 2025: $3,500 for ages 50 and up | 2024: $7,500 for ages 50 and up 2025: $7,500 for ages 50 and up |
| Enhanced Catch-up Contributions (ages 60 to 63 only) | None | 2025: $$5,250 for ages 60 to 63 only | 2025: $$11,250 for ages 60 to 63 only |
| Roth Accounts | No | Yes | Yes |
| Vesting | Contributions are immediately 100% vested | Contributions are immediately 100% vested | Employee salary-deferrals are immediately 100% vested Employer contributions may be subject to a vesting schedule |
| Loans | No | No | Yes |
| Age Restrictions | May exclude employees under age 21 | None | May exclude employees under age 21 |
| IRS Reporting By Employer | None | None | Form 5500 |
| Establishment Deadlines | Employer's tax-filing deadline, including extensions | Oct. 1 of the year in which the plan is being established | The last day of the employer's plan year (usually calendar year) |
| Employer-paid Fees | None | None | Annual fee |
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In determining which of these retirement plans is most appropriate for your business, you'll want to consider a few key questions, including:
- How much, if any, responsibility do you want the business to have for contributing to employee retirement plans?
- What percentage of compensation do you want employees to be able to contribute each year?
- Do you want to require the business to contribute to the plan on behalf of employees?
- Do you want employer contributions to be subject to a vesting schedule?
Download Brochures
Get more details in our informational brochures.
