A. Either plan will work fine for your business. Here are the basic differences:
- A SEP (Simplified Employee Pension) allows an employer to contribute to employees' IRA's without the hassle of setting up a profit-sharing plan. The employee (or self-employed individual) must be 21 years of age, and employed at least 3 or the last 5 years. The contribution is the lesser of 25% of an employees' compensation up to, but not exceeding, $49,000. The employer must contribute to every eligible employee who earns at least $550 in compensation.
- A SIMPLE IRA pertains to every employee earning at least $5,000 in the preceding plan year. There are less restrictive eligibility requirements. The employees can make elective deferrals, and for those doing so, the employer makes matching contributions limited to $11,500 ($14,000 for employees age 50 or older), or fixed non-elective contributions equal to two percent of each eligible employee's compensation.