Retirement Plans for Your Team: SEP, SIMPLE, and 401(k)
Compare the three main plans, see the 2026 limits, and learn how tax credits can cover setup costs.
A retirement plan is one of the most valued benefits you can offer, and it can be one of your best tools for building your own wealth. Yet many owners skip it, assuming plans are expensive or complicated.
Modern plans are cheaper and simpler than they used to be, and federal tax credits can cover much of the cost for small employers. Here is how the three main options compare.
The three main plans at a glance
| SEP IRA | SIMPLE IRA | 401(k) | |
|---|---|---|---|
| Who contributes | Employer only | Employee and employer | Employee and employer |
| Employee deferral | None | $17,000 (+$4,000 at 50+) | $24,500 (+$8,000 at 50+) |
| Employer contribution | Up to 25% of pay, max $72,000 | Required: 3% match or 2% for all | Optional, or required for safe harbor |
| Total cap per person | $72,000 | Deferral plus employer amount | $72,000 plus catch-up |
| Admin effort | Very low | Low | Moderate |
A SEP IRA is the simplest. You decide each year whether to contribute, but you must give every eligible employee the same percentage of pay you give yourself. That makes it best for owners with few or no employees.
A SIMPLE IRA lets employees save from their own paychecks and requires you to either match up to 3% of pay or contribute 2% for every eligible employee. It is generally limited to employers with 100 or fewer employees.
A 401(k) has the highest limits ($24,500 employee deferral in 2026, with an extra $8,000 catch-up at age 50 and $11,250 at ages 60 to 63) and the most design choices, such as Roth contributions, vesting schedules, and profit sharing.
Try it
Owner Retirement Plan Comparer
Compare how much you could put away for yourself under each plan type.
Highest possible 2026 contribution
$46,804
with a Solo 401(k)
Employee deferral plus employer profit sharing. Owners and spouses only.
Employer contribution only. Simple to open; must cover eligible employees at the same %.
Lower limits, assumes a 3% match. Works for teams up to 100.
2026 limits: 401(k) deferral $24,500 (catch-up $8,000 at 50+, $11,250 at 60 to 63), SIMPLE $17,000 (catch-up $4,000 or $5,250), total additions $72,000, compensation counted up to $360,000. For the self-employed, contributions are based on profit minus half of self-employment tax (about $8,478 here). Plans with employees must cover them too. Estimates only; confirm with a tax professional.
State auto-IRA mandates
More than a dozen states, including California (CalSavers), Oregon (OregonSaves), Illinois, New York, and others, now require employers that do not offer a retirement plan to sign up for a state-run auto-IRA program. Employees are enrolled automatically and can opt out. Your cost is mostly administrative, since you do not contribute.
Penalties for ignoring a mandate
States that require participation can fine employers that miss deadlines, often per employee. If you operate in a mandate state, either register with the state program or set up your own qualified plan, which exempts you.
Tax credits that pay for a plan
Under SECURE 2.0, employers with 50 or fewer employees can claim a credit for 100% of eligible startup costs, up to $5,000 a year for the first three years (the cap depends on how many non-highly compensated employees you have). A separate credit covers employer contributions up to $1,000 per employee earning $100,000 or less, phasing down after year two and ending after year five. Employers with 51 to 100 employees get reduced credits, and plans that add automatic enrollment can claim an extra $500 a year for three years.
Owner story
Tomas assumed a 401(k) would cost him thousands a year. His tax pro showed that the startup credit would cover most of the setup and admin fees for three years, and the contribution credit would offset much of his match at first. He launched a plan with a 3% match and saw two experienced techs stay through peak season.
Illustrative composite, not a real customer.
Quick check
You have six employees and want them to save from their own paychecks with minimal paperwork. Which plan fits best?
Words to know
- Elective deferral
- The part of their paycheck an employee chooses to put into a retirement plan.
- Safe harbor 401(k)
- A 401(k) that skips most nondiscrimination testing in exchange for a required employer contribution.
- Auto-IRA
- A state-run program that automatically enrolls workers whose employers have no retirement plan.
- Vesting
- The schedule by which employees gain full ownership of employer contributions.
Finished reading?
Track your progress through Stage 5: Employ.
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