SEP, SIMPLE IRA or 401(k) for a small business?

Assumptions and sources

• SEP IRA. Employer money only, at the same percentage of pay for you and every eligible employee, up to 25% of pay and $72,000, counting pay up to $360,000. Sole proprietors use the reduced rate from IRS Publication 560 (rate ÷ (1 + rate) of net profit minus half of self-employment tax). Set it up and fund it by the business’s tax return due date, including extensions.
• SIMPLE IRA. Employees can defer up to $17,000 in 2026, or $18,100 for employers with 25 or fewer employees, plus a $4,000 catch-up at 50 ($3,850 under the higher limit). The employer must either match up to 3% of pay or give 2% of pay to everyone eligible. A new plan generally has to be set up between January 1 and October 1. You can’t have another plan the same year. For sole proprietors, pay is net earnings from Schedule SE (92.35% of profit).
• Starter 401(k). Employees are automatically enrolled at 3% to 15% of pay and can defer up to $6,000 ($1,100 more at 50). No employer contributions are required or allowed, and you can’t have another plan.
• Safe harbor 401(k). Deferrals up to $24,500 ($8,000 catch-up at 50) plus either a basic match (100% of the first 3% of pay deferred and 50% of the next 2%) or 3% of pay for everyone eligible. A 401(k) can be adopted after year-end, up to the tax return due date, and treated as in place for the prior year, but only for employer contributions: employee deferrals can’t be made retroactively.
• Startup costs credit. For employers with 100 or fewer employees paid at least $5,000 who have at least one non-highly compensated employee (paid under $160,000). It covers 100% of eligible setup and admin costs with 50 or fewer employees, or 50% with 51 to 100, up to the greater of $500 or $250 per non-highly compensated employee (at most $5,000), for 3 years. We treat every eligible employee as non-highly compensated unless typical pay is above $160,000.
• Employer contribution credit. Up to $1,000 per employee of what you contribute (not employee deferrals), at 100% in years 1 and 2, 75% in year 3, 50% in year 4 and 25% in year 5. Employees paid more than $110,000 in 2026 don’t count, and neither do you. With 51 to 100 employees the credit is cut by 2 percentage points for each employee over 50, following the Form 8881 worksheet. It doesn’t apply to a starter 401(k), which has no employer contributions.
• Auto-enrollment credit. $500 a year for 3 years when you add automatic enrollment to a 401(k) or SIMPLE IRA. A regular SEP has no employee deferrals, so it doesn’t qualify. New 401(k)s started since 2025 must generally auto-enroll, unless the business has 10 or fewer employees or is less than 3 years old.
• Admin costs are estimates. SEP and SIMPLE IRAs: $0, as at brokers that charge no account fees (for example Schwab); fund expenses are separate. 401(k)s: one published price list (Human Interest, checked 2026-10-31), from $80 a month plus $5 per employee to $180 plus $7, with a setup fee of up to $499 that may apply. We assume all of it counts toward the startup credit. Get quotes; you can enter your own under Advanced.
• Not modeled: profit-sharing on top of a 401(k), the age 60–63 catch-up, employees who don’t defer, vesting, part-time eligibility rules, the tax deduction for contributions, the reduced deduction for costs covered by a credit, and owners with other businesses. Your inputs aren’t sent to us.

This page shows facts side by side and doesn’t recommend a plan. Results are estimates for education only, not financial, tax or legal advice. Confirm the details with a tax professional or plan provider.