A SEP and a Simple IRA have several differences in their investment rules. One major difference is that employers are the sole funding source for SEPs, while both employers and employees can contribute to a Simple IRA, according to Charles Schwab.
The Internal Revenue Service doesn't require annual contributions to a SEP, but it does require annual employer contributions to a Simple IRA. The IRS also limits the annual contributions to both accounts, although the limits for a SEP usually are higher. Both plans allow account owners to make withdrawals at age 59 1/2, although the Simple IRA carries a higher early withdrawal penalty if owners cash out within the first two years of participation, notes The Vanguard Group.