Practice Quiz

FINRA Series 6

Category - Series 6

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One difference between a SEP-IRA and a SIMPLE IRA is that:
  1. Only employers can make contributions to a SEP-IRA; both employees and employers can contribute to a SIMPLE IRA.
  2. The contributions made to a SEP-IRA are tax deductible, which is not the case with a SIMPLE IRA.
  3. The SEP-IRA has a higher contribution limit than that allowed by a traditional IRA or a Roth IRA, but the SIMPLE IRA contribution limits are the same as that of a traditional IRA or a Roth IRA.
  4. There is no difference; both names refer to the same type of IRA that is available to a small business or a self-employed individual.
Explanation
Answer: A - The main difference between a SEP-IRA and a SIMPLE IRA is that only employers can contribute to a SEP-IRA whereas both employees and employers can contribute to a SIMPLE IRA. In fact, employers are required to contribute to a SIMPLE IRA on the employee’s behalf, even if the employee chooses to make no contributions. The contributions to both plans are tax deductible and both plans have higher contribution limits than those allowed by the traditional IRA and Roth IRA plans.
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