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| | | | Simplified Employee Pension Plan (SEP) | | SIMPLE IRA | | |
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| | Contribution Source | | The employer makes contributions for all eligible employees to an employer-sponsored plan. | | Employees make contributions along with employer contributions to an employer-sponsored plan. | | |
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| | Target business | | Small businesses and self-employed individuals. | | A business with less than 100 employees. | | |
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| | Eligibility | | Employees must be 21 or older, have worked for an employer in 3 of the past 5 years, and earned at least $500. | | Employees who earned at least $5,000 during any 2 previous years and are expected to again in the current year. | | |
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| | Contribution amounts | | An employer can make deductible contributions, up to 25% if incorporated, 20% if non-incorporated, of each employee's compensation, up to $45,000. Compensation is limited to $225,000 for this calculation.2 | | Employees can contribute through payroll deduction the lesser of: $10,500 for 2007, OR 100% of earned income. Catch-up contributions of $2,500 are allowed for 2007 for people 50 and over.3 | | |
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| | Contribution flexibility | | Contributions are discretionary. | | An employer must contribute either: 100% match of employee contributions up to 3% of compensation, OR a non-elective 2% contribution on the first $225,000 of compensation for each eligible employee. | | |
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| | Plan establishment deadlines | | Contributions can be made up to the due date of employer's tax return, including extensions. | | The plan must be set up by Oct. 1 and employees must be notified 60 days prior to the effective date of the plan. Employer contributions must be made by the date of the employer's tax return due date, including extensions. | | |
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| | Vesting | | 100% immediate vesting. | | 100% immediate vesting. | | |
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| | Distribution rules | | Withdrawals may be taken immediately and are included in the recipient's gross income. If taken before age 59 ½, withdrawals are subject to an additional 10% penalty, except in special situations and for qualified expenses. Distributions must begin by April 1 of the year following the year the individual reaches age 70 ½. Distributions are based upon life expectancy as determined by the Uniform Table. | | Withdrawals taken during the first 2 years of participation are included in the recipient's gross income and are subject to a 25% penalty, thereafter 10% unless participant is age 59 ½ or older. Exceptions exist for special situations and qualified expenses. Distributions must begin by April 1 of the year following the year the individual reaches age 70 ½. Distributions are based upon life expectancy as determined by the Uniform Table. | | |
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