Retirement Plans for Your Small Business: SEP and SIMPLE IRAs

by SouthStar BankSeptember 18, 20250 comment

small business owner, retirement plans, retirement plans for small business owners, sep ira, simple ira

Running a small business means wearing many hats—managing operations, building client relationships, and keeping your team motivated. One of the most important responsibilities is finding the right retirement plan for your small business. While large corporations often offer 401(k) plans, small business owners may find SEP and SIMPLE IRAs to be cost-effective, flexible retirement solutions.

At SouthStar Bank, we’re committed to helping Texas business owners build strong financial futures. Here’s what you need to know about SEP and SIMPLE IRA options for small business owners.

What Is a SEP IRA?

A Simplified Employee Pension (SEP) IRA is designed for self-employed individuals and small businesses. It’s one of the easiest retirement plans to set up and maintain, offering high contribution limits and tax advantages.

Key Benefits of a SEP IRA:

High contribution limits: For 2025, you can contribute the lesser of either 25% of the first $350,000 of an eligible employee’s compensation or $70,000.
Employer-funded: Only the employer makes contributions, which can vary each year depending on cash flow.
Tax advantages: Contributions are tax-deductible, reducing taxable income for your business.
Easy setup and administration: Minimal paperwork and no annual IRS filings make SEPs highly suitable for small businesses.

A SEP IRA is a wise choice for solo entrepreneurs or business owners who want flexibility in contributions while keeping administrative costs low.

What Is a SIMPLE IRA?

A Savings Incentive Match Plan for Employees (SIMPLE) IRA is another excellent retirement option for small businesses, especially those with fewer than 100 employees. Unlike SEP IRAs, SIMPLE IRAs allow both employers and employees to contribute.

Key Benefits of a SIMPLE IRA:

Employee participation: Employees can make salary deferral contributions, encouraging them to save for retirement.
Employer match or contribution: Employers must either match up to 3% of employee compensation or make a 2% non-elective contribution.
Lower contribution limits than SEPs: For 2025, employees can contribute up to $16,500, with an additional $3,500 catch-up contribution for those 50-59 and 64 or older. Catch-up contributions for those ages 60-63 are $5,250.
Tax savings: Employer contributions are tax-deductible, and employee contributions are made pre-tax.

SIMPLE IRAs are ideal for small businesses that want to offer retirement benefits as a tool to attract and retain talent.

Which IRA Is Right for Your Business?

Choosing between a SEP IRA and a SIMPLE IRA depends on your business size, goals, and budget. If you’re self-employed or have just a few employees, a SEP IRA offers flexibility and higher contribution limits. If you want to encourage employees to contribute to their own retirement while providing a company match, a SIMPLE IRA may be the better fit.

Partner with SouthStar Bank

At SouthStar Bank, we understand that small business owners need retirement solutions that are both practical and rewarding. Our IRA experts are happy to help you explore IRA options and determine the best retirement plan for your business and employees.

Ready to take the next step? Have any questions? Contact your SouthStar Bank IRA experts today at 512.384.3948 or IRA@southstarbank.com.