Personal Finance & Estate › Retirement accounts & pensions › Individual Retirement Account (traditional IRA)
SEP IRA & SIMPLE IRA (small-business IRAs)
SEP 1978; SIMPLE 1997· Account or plan
Law or rule (2026)Set by statute, regulation or the agency; numbers change yearly.
Low-paperwork, IRA-based retirement plans for small businesses and the self-employed.
See it on the Personal Finance & Estate map →How it works
A SEP IRA (1978) takes employer contributions only: up to 25% of pay (about 20% of net self-employment income), max $72,000 in 2026, at the same percentage for every eligible employee. A SIMPLE IRA (1997), for firms with up to 100 employees, lets workers defer $17,000 in 2026 (more at 50+) while the employer matches up to 3% or gives 2% to all. Main traps: a 25% early-withdrawal penalty in a SIMPLE IRA's first two years, and SEP balances that spoil a backdoor Roth.
Why it matters for you
They are the easiest way for a small business to offer retirement savings, with no Form 5500. Ask your CPA whether a solo 401(k) fits better.
Rules, limits and sources (2026)
IRC Secs. 408(k) and 408(p); IRS model Forms 5305-SEP and 5304-SIMPLE; 2026 limits in IRS Notice 2025-67.
Connections (2)
▸SEP IRA & SIMPLE IRA (small-business IRAs) are small-business versions of Individual Retirement Account (traditional IRA)Law or rule (2026)
How they connect
SEP and SIMPLE IRAs are ordinary IRAs at the account level: same investments, tax deferral, withdrawal taxes, RMDs and 10% penalty. What differs is funding: an employer contributes (SEP) or workers defer from pay with an employer match (SIMPLE), at far higher limits than a regular IRA.
When it applies
Created by Congress in 1978 (SEP) and 1996 (SIMPLE, effective 1997) for small employers who found 401(k) paperwork too costly.
The rule
IRC Secs. 408(k) and 408(p) define them as IRAs; custodians report them on the same Form 5498 as other IRAs.
Watch out for
SECURE 2.0 allowed Roth SEP and SIMPLE contributions, but custodians have been slow and uneven in offering them.
▸Backdoor Roth IRA is complicated by pre-tax balances in SEP IRA & SIMPLE IRA (small-business IRAs)Watch out
How they connect
The pro-rata rule treats all your traditional, SEP and SIMPLE IRAs as one pot on December 31. A self-employed person with a $200,000 SEP IRA who converts a $7,500 nondeductible contribution owes tax on about 96% of it. The usual fix: roll the SEP into a solo or employer 401(k) first, if the plan accepts it.
When it applies
Commonly hits self-employed professionals and small-business owners who fund SEP or SIMPLE IRAs and also try the backdoor.
How sure?
IRC Sec. 408(d)(2) and IRS Form 8606 instructions, which include SEP and SIMPLE balances in the calculation.
Watch out for
Whether moving SEP money into a 401(k) just to clear the way is worth the hassle depends on you; ask your CPA.