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Compare our SEP-IRAs, i401(k)s & SIMPLE IRAs

Check the details in this chart to find out which plan is right for you and your employees.


Key advantages

SEP-IRA

Works well for business owners who prefer to provide a retirement benefit to all employees (including themselves) by making employer contributions.

INDIVIDUAL 401(K)

Excellent method to maximize contributions. Can contribute as employer and employee.

Vanguard offers both pre-tax and Roth (after-tax) contributions.

SIMPLE IRA

Great starter plan that encourages contributions from employees.


Employers who can provide this plan

SEP-IRA

Self-employed individuals or any business that doesn't currently maintain a retirement plan.

INDIVIDUAL 401(K)

Self-employed individuals or businesses with no common-law employees.

SIMPLE IRA

Self-employed individuals or any business with 100 or fewer employees that doesn't currently maintain a retirement plan.


Employee eligibility and minimum coverage requirements

SEP-IRA

Generally, employees must be allowed to participate if they're 21 or older, earn at least $600 for the 2018 tax year, and have worked for the same employer in at least 3 of the past 5 years. (Employers can also choose less restrictive requirements.)

INDIVIDUAL 401(K)

No common-law employees. Otherwise, no age or service restrictions.

SIMPLE IRA

No age restrictions. Employees must have earned at least $5,000 during any 2 prior years (consecutive or nonconsecutive) and expect to earn at least $5,000 in the current year. (Employers can also choose less restrictive requirements.)


Funding responsibility

SEP-IRA

Generally, employers only contribute to SEP-IRAs.

Employees can't contribute to a SEP-IRA through payroll deductions. They may be able to make traditional IRA contributions to the plan.

INDIVIDUAL 401(K)

Business owners can contribute as employer and/or employee.

SIMPLE IRA

Employee payroll contributions and/or employer contributions.


Contribution options

SEP-IRA

Employer can decide whether or not to make contributions from year to year.

INDIVIDUAL 401(K)

Business owner can contribute as employer and/or employee.

SIMPLE IRA

Employee can decide how much to contribute. Employer must make matching contributions, or must contribute 2% of each employee's salary up to the set maximum.


Employer contribution limits

SEP-IRA

Up to 25% of the participant's compensation* or a maximum of $55,000 for the 2018 tax year, whichever is less.

Contributions are deductible and aren't required every year.

INDIVIDUAL 401(K)

Up to 25% of compensation* not to exceed $55,000 for the 2018 tax year.

Contributions are deductible and aren't required every year.

Total contributions (both employer and employee) can't exceed $55,000 for the 2018 tax year ($61,000 if age 50 or older).

SIMPLE IRA

Option 1. Dollar-for-dollar match of employee contributions up to 3% of each employee's compensation (which can be reduced to as low as 1% in any 2 out of 5 years).

Option 2. Contribute 2% of each employee's compensation. Maximum compensation used to determine this contribution is $275,000 for the 2018 tax year.

Contributions are deductible and are required every year the plan operates.


Employee contribution limits

SEP-IRA

For the 2018 tax year, up to $5,500 ($6,500 for employees age 50 or older).

This is the total amount the employee can personally contribute to all SEP, Roth, and traditional IRAs each year.

INDIVIDUAL 401(K)

For the 2018 tax year, $18,500 ($24,500 for employees age 50 or older).

Can't exceed 100% of compensation.

Can be either pre-tax or after-tax (Roth).

SIMPLE IRA

For the 2018 tax year, $12,500 ($15,500 for employees age 50 or older).

Can't exceed 100% of compensation.

Employees aren't required to contribute in any given year.


Investment choices

SEP-IRA

One-person SEP-IRA. Vanguard mutual funds and ETFs (exchange-traded funds), plus mutual funds and ETFs from other companies, individual stocks, CDs (certificates of deposit), and bonds.

No minimum initial investment.

SEP-IRA for more than one person. Vanguard mutual funds.

INDIVIDUAL 401(K)

Vanguard mutual fund Investor Shares.

No minimum initial investment.

SIMPLE IRA

Vanguard mutual fund Investor Shares.

No minimum initial investment.


Withdrawals, loans & payments

SEP-IRA

An employee may initiate a withdrawal at any time, subject to current federal income taxes and a possible 10% penalty if the employee is under age 59½.

No loans permitted from SEP-IRAs.

INDIVIDUAL 401(K)

An employee can't take withdrawals until a specified event such as reaching age 59½, death, separation from service, or other event as identified in the plan document.

The plan may permit hardship withdrawals, which may be subject to a 10% penalty if the employee is under age 59½.

No loans offered by Vanguard's Individual 401(k) program.

SIMPLE IRA

An employee may initiate a withdrawal at any time, subject to current federal income taxes. If under age 59½, the employee may be subject to a 25% penalty if the withdrawal is taken within the first 2 years of participation, and a possible 10% penalty if it's taken after the first 2 years.

No loans permitted from SIMPLE IRAs.


Employer's responsibilities

SEP-IRA

Complete Form 5305-SEP to set up a plan.

No IRS reporting required.

INDIVIDUAL 401(K)

Our program includes a prototype plan document and adoption agreement for employers to use to set up their plans.

Annual filing of Form 5500 may be required.

Plan administration duties include periodically updating or restating the plan.

SIMPLE IRA

Complete Form 5304-SIMPLE or 5305-SIMPLE to set up a plan.

No employer IRS reporting required.


LOOKING FOR A FULL-SERVICE PLAN?

Our program for small- and mid-sized businesses is a high-quality, easy-to-administer retirement offer for 401(k), 403(b), and other defined contribution plan types. It includes a full range of services, such as low-cost investments, recordkeeping, plan administration, compliance, and participant education. The program is available for start-up businesses to those with assets in excess of $20 million.

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We're here to help

For assistance with new plans:

Call 800-992-7188

For assistance with existing plans:

Call 800-205-6189

Monday through Friday
8 a.m. to 8 p.m., Eastern time

REFERENCE CONTENT

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Contributions

Delaying the payment of income taxes on income. For example, owners of traditional IRAs do not pay income taxes on the interest, dividends, or capital gains accumulating in their retirement accounts until they begin making withdrawals.

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Common-law employee

An employee other than an owner, a business partner, or a shareholder of a corporation and their respective spouses. (Independent contractors are not employees.)

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Traditional IRA

A tax-deferred individual retirement account. Contributions are fully deductible for all individuals who are not active participants in employer-sponsored plans or for plan participants within certain income ranges.

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Roth IRA

A type of IRA that lets an investor save up to a certain amount of after-tax dollars each year. The earnings in the account grow tax-free, and distributions taken after age 59½ (if the account has been open at least 5 years) are exempt from taxes.

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Mutual fund

A type of investment that pools shareholder money and invests it in a variety of securities. Each investor owns shares of the fund and can buy or sell these shares at any time. Mutual funds are typically more diversified, low-cost, and convenient than investing in individual securities, and they're professionally managed.

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ETF (exchange-traded fund)

A type of investment with characteristics of both mutual funds and individual stocks. ETFs are professionally managed and typically diversified, like mutual funds, but they can be bought and sold at any point during the day using straightforward or sophisticated strategies.

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Stock

An investment that represents part ownership in a corporation. Each share of stock is a proportional stake in the corporation's assets and profits.

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CD (certificate of deposit)

An insured, interest-bearing deposit that requires the depositor to keep the money invested for a specific period of time or face penalties. Brokered CDs can be traded on the secondary market.

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Bond

A loan made to a corporation or government in exchange for regular interest payments. The bond issuer agrees to pay back the loan by a specific date. Bonds can be traded on the secondary market.