Undoubtedly the Roth IRA is a more popular retirement plan as it is used by large corporations to benefit their employees, and is regulated by brokerage firms or banks. Comparing the Roth IRA vs SEP IRA, is really like comparing apples and oranges. As the two were created for totally different types of companies to benefit their employees with a retirement plan. The Roth plan is available for companies with over one hundred employees, and is managed by a liaison in the human resources department or a large financial institution. The SEP or Simplified Employee Pension was created to cater to smaller companies that have less than one hundred employees on their payroll roster. The SEP is also used for the self-employed entrepreneur that would like to implement their own retirement funding, and growth plan.

The Roth IRA has limitations set forth that are a little tighter than the simplified pension program, as a account holder under the age of fifty, you can only deposit up to five thousand dollars per year maximum. This number may change from time to time, as the Internal Revenue Service will increase the amount for various reasons due to the financial climate of the business industry. The S.E.P. is a little bit more liberal in the contributions department, and can be up to twenty five percent of the employee’s annual income. The employer has the control on setting the cap for the contributions, and they can for their own reasons make it as low as ten percent or less if they like.

Under the simple pension IRA guidelines if an employee has been working for the employer for at least three of the last five years, they have to be eligible to receive this benefit package. The SEP contributions by the employer are completely tax deductible and as previously mentioned the combined contributions of the employee and employer can be up to twenty five percent of the person’s yearly income. You can almost look at the SEP as a profit sharing plan put in place by the company to motivate it’s workers, and give them a chance to have a nest egg for their golden years.

As the simple employee pension plan allows the self-employed to create their own account, they are restricted as of last year to being able to contribute up to a little over eighteen percent of their net profits for the year. As most entrepreneurs do not know this plan even exists, only a few take part in this type of account.