Overview: When a business has no employer-sponsored plan, or when someone is self-employed, SEP-IRAs, SIMPLE plans, and Keogh plans step in to provide tax-advantaged retirement savings with high contribution ceilings.

SEP-IRAs

A Simplified Employee Pension (SEP-IRA) is one of the easiest retirement plans to establish and maintain. Any self-employed individual, freelancer, or small business owner — of any size — can open a SEP-IRA by completing IRS Form 5305-SEP. There are no annual reporting requirements (no Form 5500), no nondiscrimination testing, and no complex administration.

The contribution rules are straightforward with one crucial complication. For employees, the employer can contribute up to the lesser of 25% of compensation or $69,000 (2024 limit). For a self-employed owner, the calculation is different: because contributions reduce net self-employment earnings, the IRS caps the effective rate at approximately 20% of net adjusted self-employment income (net profit minus half of self-employment tax, before the SEP contribution itself). The circular math resolves to the IRS's "reduced rate" formula. This is a common exam calculation area.

Only the employer contributes to a SEP-IRA — employees cannot make their own salary deferrals. The employer's contribution percentage must be applied equally to all eligible employees: anyone who is at least 21, has worked for the business in at least three of the last five years, and received at least $750 in compensation (2025 figure). There are no vesting schedules — all contributions vest immediately and belong to the employee at once.

The deadline for SEP-IRA contributions is the employer's tax filing deadline including extensions — potentially as late as October 15 for a sole proprietor who extends. This flexibility is valuable: you can decide in the fall how much to contribute for the prior year.

A major limitation: if you have employees, you must contribute the same percentage of their compensation as you contribute for yourself. A sole proprietor with several long-term staff members may find the cost prohibitive.

SIMPLE Plans

A SIMPLE IRA (Savings Incentive Match Plan for Employees) is available only to businesses with 100 or fewer employees who earned at least $5,000 in the prior year. Critically, an employer offering a SIMPLE IRA generally cannot maintain any other qualified retirement plan simultaneously.

Unlike a SEP, a SIMPLE IRA allows employees to make their own elective salary deferrals — up to $16,000 in 2024, with a $3,500 catch-up for those age 50 or older. The employer must make a mandatory contribution using one of two formulas: either a dollar-for-dollar match up to 3% of compensation (which the employer can reduce to as low as 1% in no more than two out of five years), or a 2% nonelective contribution for all eligible employees regardless of whether they contribute.

All employer contributions to SIMPLE IRAs vest immediately. The plan is more flexible than a 401(k) in terms of administration — no Form 5500, no nondiscrimination testing — but more rigid than a SEP because the employer must contribute every year. A special penalty applies to early withdrawals during the first two years of participation: the standard 10% penalty escalates to 25% for withdrawals in the first two years.

Keogh Plans

A Keogh plan (also called an H.R. 10 plan) is the umbrella term for qualified retirement plans available to self-employed individuals and unincorporated businesses. The IRS now refers to these simply as "qualified plans for self-employed," but the Keogh label remains common on exams.

Keogh plans can be structured as defined contribution plans (profit-sharing or money purchase) or defined benefit plans. A profit-sharing Keogh allows discretionary contributions up to the lesser of 25% of compensation or $69,000 (2024), with the self-employed "20% rule" applying as it does for SEP-IRAs. A money purchase Keogh requires a fixed annual contribution percentage — rigidity that has made these plans largely obsolete since the contribution ceiling was equalized with profit-sharing plans. A defined benefit Keogh is actuarially designed to fund a target annual retirement benefit; the maximum benefit is $275,000 (2024). For older, high-income self-employed individuals, defined benefit Keoghs can allow contributions far exceeding the $69,000 defined contribution ceiling.

The key tradeoff with a Keogh versus a SEP or Solo 401(k): Keoghs require annual Form 5500 filings once assets exceed $250,000, adding administrative complexity and cost.