5 Reasons a 401(k) Is Better Than a SEP IRA

Thriving Businesses Choose 401(k) Over SEP IRA—Here’s Why

As your business grows, your retirement plan should grow with it. If you’re still relying on a Simplified Employee Pension (SEP) IRA, it might be time to upgrade. A 401(k) plan—especially one with profit sharing and a Cash Balance Plan—can help your company save more, pay less in taxes, and give your team better benefits.

Here are 5 reasons why you should consider a 401(k) over a SEP IRA.

1. Save More for Retirement

A 401(k) lets you and your employees save more—a lot more.

• With profit sharing, you can contribute up to $70,000/year (or $77,500 if you’re 50+).
• Add a Cash Balance Plan and you could save up to $480,500/year in tax-deferred retirement savings.¹

Compare that to a SEP IRA, which caps out at the lesser of $70,000 or 25% of income.

2. Pay Less in Taxes

A 401(k) gives you three ways to cut your tax bill:

• Personal Tax Deduction: Contribute up to $31,000 as an employee (with catch-up).
• Business Tax Deduction: Add up to $46,500 with profit sharing for a total of $77,500—or up to $403,000 with a Cash Balance Plan.
• Start-Up Tax Credit: Get up to $5,500/year for 3 years to help cover plan setup costs.²

That’s money back in your pocket—now and in retirement.

3. More Flexibility, More Control

Unlike SEP IRAs, 401(k) plans offer:

• Roth contributions (pay taxes now, grow tax-free)
• Flexible employer contributions (no need to match everyone equally)
• Custom plan designs to fit your business goals

With a SEP IRA, you must contribute the same percentage to every employee, which can get expensive fast, especially if your company is looking to grow.

4. Built-In Safety Net

When life happens, sometimes it can make sense to borrow against your retirement savings. If you choose, a 401(k) plan can offer a safety net to employees and owners alike in the form of 401(k) loans. A 401(k) can offer loan options, a helpful backup for unexpected expenses or new business ventures.
SEP IRAs? No loans are allowed.

4. Help Employees Save More

A 401(k) empowers your team to save their own money—something a SEP IRA doesn’t allow.
Plus, you can add:

• Auto-enrollment (employees start saving automatically)
• Auto-escalation (savings increase automatically over time)

These features boost participation and help your team build long-term wealth.

Ready to Upgrade?

A 401(k) plan isn’t just a retirement tool—it’s a business growth strategy. With higher savings limits, better tax breaks, and more flexibility, it’s the smart choice for thriving businesses.

Let Fisher\SMB help you build a plan that works for you and your team. Contact us to schedule a consultation to discuss your options.

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