SEP IRA vs. Simple IRA: Pros and Cons
A SEP IRA vs SIMPLE IRA can be a difficult decision to make, because both of these plan types offer both pros and cons. They can both be the right choice for businesses which are small, and are both very popular choices in the United States. Both the SEP and SIMPLE IRA rules are fairly easy for both employers and employees to understand.
Pros: A SEP IRA account can be ideal for small businesses and those who are self employed, and it has benefits when comparing a SEP IRA vs SIMPLE IRA. The pros of this plan type include low costs, no mandatory annual contribution amounts, and increased flexibility. The contributions your employer makes with this plan are tax deductible. One of the drawbacks with these small business and self employed retirement plans is that you can not make additional contributions though. Another con with this type of plan is that it is not possible to borrow against your account balance, which many 401 k plans allow.
SEP IRA vs SIMPLE IRA considerations also need to closely evaluate a SIMPLE IRA. This type of plan allows employer matches which are tax deductible, and your deductions can be made on a pre tax benefit. Your employer must match your contributions up to a specific percentage of your salary, and the SIMPLE IRA contribution limits are set by the IRS in the USA. These limits are typically less than a 401k plan though, so your contributions are less.
Cons: One drawback is that these plans are only open to businesses which have fewer than one hundred employees.
Choosing a SEP IRA vs SIMPLE IRA is a decision that should be chosen carefully. Each of these plans can be ideal in some circumstances, but could be the wrong choice in others. Looking at the pros and cons of both plan types will help you make a better decision.