If you work for yourself or run a small business, you don't get a default retirement plan. You build one. The two simplest options are the SEP-IRA and the SIMPLE IRA, and they work in very different ways. This is Part 4 of our Retirement Accounts Decoded series, with the 2026 figures.

SEP-IRA: employer contributions only

The IRS describes a SEP as a plan that lets employers contribute to traditional IRAs, called SEP-IRAs, set up for employees. A business of any size, even a self-employed person, can establish one, and only the employer contributes.

For a self-employed person, the percentage is applied to compensation as the IRS defines it for self-employed individuals, which generally works out to a lower effective rate than 25% of net profit. The worksheets in Publication 560 walk through it.

SIMPLE IRA: employee deferrals plus a required employer contribution

A SIMPLE IRA is for small businesses, generally those with 100 or fewer employees that don't have another retirement plan. Employees can defer part of their pay, and the employer is required to contribute every year, either by matching deferrals dollar for dollar up to 3% of pay or by contributing 2% of pay for every eligible employee, per the IRS FAQ.

Table: 2026 SIMPLE IRA limits
FeatureAmount
Employee deferral limit$17,000
Higher limit, generally for employers with 25 or fewer employees$18,100
Age 50+ catch-up$4,000
Age 50+ catch-up in plans that qualify for the $18,100 limit$3,850
Higher catch-up, ages 60 to 63$5,250

These come from the IRS's 2026 limits announcement. The higher $18,100 limit generally applies to employers with 25 or fewer employees, and to certain employers with 26 to 100 employees that make higher required contributions. Check the IRS's SIMPLE IRA page for the eligibility rules.

A hypothetical SIMPLE IRA year
Employee earns$60,000
Employee defers$10,000
Employer matches dollar for dollar up to 3% of pay: 3% × $60,000$1,800
Total into the employee's account$11,800
Hypothetical. The employer's 2% non-elective alternative would instead put 2% of pay, or $1,200, into the account regardless of deferrals.

One SIMPLE-specific rule to know: the 25% additional tax applies if you withdraw money within two years of first participating, instead of the usual 10%, per the IRS FAQ.

Which fits whom

Table: SEP-IRA versus SIMPLE IRA
SEP-IRASIMPLE IRA
Who contributesEmployer onlyEmployees defer; employer must contribute
Business sizeAny size, including self-employedGenerally 100 or fewer employees
2026 maximumLesser of 25% of pay or $72,000$17,000 deferral, plus employer contribution

A SEP can allow much higher dollar contributions for a high-earning owner. A SIMPLE can be easier for employees to participate in, because they choose how much to defer. Neither is the right answer for everyone, and a business owner weighing them should talk to a tax professional.

Common questions

What is the SEP-IRA contribution limit for 2026?

The lesser of 25% of the employee's compensation or $72,000, with compensation capped at $360,000 for the calculation.

What is the SIMPLE IRA contribution limit for 2026?

Employees can defer up to $17,000, with a higher $18,100 limit generally for employers with 25 or fewer employees. Catch-up contributions are $4,000 for ages 50 and older ($3,850 in plans that qualify for the higher limit), and $5,250 for ages 60 to 63.

Who contributes to a SEP-IRA?

Only the employer. For a self-employed person, that means you contribute to your own SEP-IRA as the business owner.

Can an employer have a SIMPLE IRA and a 401(k)?

Generally no. The IRS says an employer with a SIMPLE IRA plan cannot have any other retirement plan.

This article is for informational purposes only and does not constitute tax, legal, or investment advice. Limits and rules are those the IRS has published for 2026 and may change; employer plans can set rules that are stricter than the IRS's maximums. The people and figures in the examples are hypothetical. Consult a licensed tax professional or financial advisor about your own situation.
Sources
Retirement Accounts Decoded series
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