IRA fundamentals
What kinds of IRA are there?
Four kinds of IRA exist. Traditional and Roth IRAs are individual accounts anyone with compensation can open; SEP and SIMPLE IRAs are employer-sponsored plans built on IRA accounts, used mainly by small businesses and the self-employed. All 2026 figures below are from IRS Notice 2025-67.
Side by side (2026)
| Traditional IRA | Roth IRA | SEP IRA | SIMPLE IRA | |
|---|---|---|---|---|
| Who contributes | Individual | Individual | Employer only | Employee + required employer contribution |
| 2026 contribution limit | $7,500 (+$1,100 catch-up 50+) | $7,500 (+$1,100 catch-up 50+), shared with Traditional | Lesser of 25% of compensation or $72,000 | $17,000 employee deferral (+$4,000 catch-up 50+) |
| Tax treatment | Pre-tax (deduction may be income-limited); taxed on withdrawal | After-tax; qualified withdrawals tax-free | Pre-tax; taxed on withdrawal | Pre-tax; taxed on withdrawal |
| Income limit to contribute | None (deduction limited if covered by a workplace plan) | Yes (2026: phases out $153,000–$168,000 single, $242,000–$252,000 MFJ) | None | None |
| RMDs | Yes (73 or 75 by birth year) | None for the owner | Yes | Yes |
| Early-withdrawal penalty | 10% before 59½ (exceptions apply) | Contributions anytime; earnings restricted | 10% before 59½ | 25% in the first 2 years of participation, then 10% |
| Counted in the pro-rata rule | Yes | No | Yes | Yes |
SEP IRA specifics (2026)
A Simplified Employee Pension lets an employer (including a self-employed person) contribute to IRAs for each eligible employee. Only the employer contributes — there are no employee deferrals and no catch-up. The 2026 limit is the lesser of 25% of compensation or $72,000, with compensation capped at $360,000. Contributions must be the same percentage of pay for every eligible employee (eligibility: age 21, worked 3 of the last 5 years, at least $800 of 2026 compensation). Contributions are always immediately 100% vested.
SIMPLE IRA specifics (2026)
A Savings Incentive Match Plan for Employees is for employers with 100 or fewer employees. Employees defer salary — $17,000 in 2026, plus a $4,000 catch-up from age 50 (a higher $5,250 catch-up applies at ages 60–63 under SECURE 2.0). Employers with 25 or fewer employees have higher limits: $18,100 deferral and $3,850 catch-up. The employer must contribute: either a dollar-for-dollar match up to 3% of pay, or a 2% nonelective contribution for all eligible employees (compensation capped at $360,000 for the nonelective option).
SIMPLE-specific rule: withdrawals within the first 2 years of participation incur a 25% penalty (not the usual 10%), and during those 2 years the money can only be rolled to another SIMPLE IRA.
Interaction notes
- SEP and SIMPLE balances count in the pro-rata rule alongside traditional IRAs, which affects backdoor Roth and conversion taxation.
- SEP and SIMPLE balances can be converted to a Roth IRA (SIMPLE only after the 2-year participation period).
- Having a SEP or SIMPLE at work makes the owner an active participant, which can limit the deductibility of separate traditional IRA contributions.
- SECURE 2.0 permits Roth SEP and Roth SIMPLE contributions; provider support is still uneven, so availability varies.
Sources
Last reviewed 2026-07-02. Educational information, not tax or financial advice.