Self-Employed IRA: Look no Further than a SEP

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Most employer retirement plans are structured with both the employee and the employers’ needs in mind, but what if the employee and employer are one and the same? Self-employed individuals may be curious about their retirement options, and, as with any self-directed investor, may want to put an alternative investment strategy to work for their futures instead of relying on Wall Street. Although every retirement investor may work toward different goals, a SEP IRA can be a suitable self-employed IRA option for those looking for flexibility and higher contribution limits.

The IRS seems to have kept self-employed individuals in mind when formulating the rules and benefits of the SEP IRA. Self-employed business owners may defer SEP IRA contributions from their income to enjoy a near-term tax benefit. To generate income for the long run, SEP IRA holders can put their contributions to work in alternative IRA investments and defer those taxes until distribution. Those with Traditional IRAs or other pre-tax employer plans may transfer or roll their accounts into a SEP IRA, further boosting one's earning potential and allowing the holder to manage his or her retirement investments in a more consolidated fashion.

The SEP IRA offers significantly higher contribution limits than other individual plans. In 2019, SEP IRA holders may contribute the lesser of 25% of compensation or $56,000 ($55,000 for the 2018 tax year). By contrast, the 2019 Traditional IRA contribution limit for individuals under 50 is only $6,000 ($7,000 for individuals over 50). Traditional IRA holders are also required to make their annual contributions on or before their tax filing deadlines; SEP IRA holders may contribute up until their business tax filing deadlines, which may lie beyond the typical mid-April date.

A few stipulations do exist for SEP contributions:

  • Employer contributions to the SEP IRAs of one's employees must be made in an equal percentage of compensation. For instance, if you elect to contribute 10% of compensation, all eligible employees with SEP IRAs must receive 10% of their respective incomes.
  • Exact annual contribution limits will vary by holder and can be tricky to determine. Consider reaching out to an accountant or tax professional for assistance with the calculation.
  • Employee elective deferrals and catch-up contributions are not permitted in SEP plans. Only employer contributions are allowed in these instances.

When you open a SEP IRA with a self-directed IRA provider, you can direct your account to invest in assets that lie outside of the stock market, such as real estate, precious metals, private equity, and more. To understand more about your retirement options as a self-employed individual, feel free to give us a call at 877-742-1270 or send us an e-mail at