SEP IRAs are Individual Retirement Accounts (IRAs) for small business owners who employ one or more employees. One can make investments outside of the standard stock market, such as in things other than stocks, bonds, and mutual funds, using a self-directed SEP IRA. Anyone can invest in almost anything with a Self-Directed SEP IRA while still enjoying tax advantages. SEPs are simple to set up and maintain, offering hassle-free retirement planning with the added benefit of much higher contribution limits that allow saving money more quickly.
About SEP IRA
One can open a SEP IRA if he/she is self-employed, runs a business, or works as a freelancer. It has lower initial and ongoing costs than a typical employer-sponsored plan. The three typical aspects of SEP IRAs are-
- Employer contributions are optional and tax-deductible.
- Minimum distributions are necessary, and they start at age 72.
- Employer contributions are instantly vested.
Features of SEP IRAs
SEP IRAs are excellent for self-employed individuals and businesses that want to provide retirement savings to their staff. Here are some salient features of SEP IRAs-
Simple to set up and maintain:
To establish a SEP IRA, one has to simply draft a formal written agreement or complete IRS Form 5305-SEP.
Generous tax-deductible contributions:
In comparison to a standard IRA, one can contribute up to $58,000 or 25% of the total employees’ salary to a Self-Directed SEP IRA (whichever is lower). For businesses, contributions are usually tax deductible.
Flexible contribution rates:
If a business performs well, the owner can increase or decrease the contributions he/she makes (as long as each employee is given the same amount).
Multiple investment options:
SEP IRA investment choices with a self-directed account include real estate, precious metals, private loans, livestock, air and space, and much more. Also, one can merge a SEP IRA with various retirement account types to increase overall investing potential.
Why Choose a SEP IRA?
For many investors, SEP IRAs are an excellent option. In comparison to regular and Roth IRAs, they have substantially larger contribution limits. Moreover, contribution levels are flexible and subject to alter from year to year as needed. With a self-directed SEP IRA, anyone can invest retirement money outside the mainstream market while still enjoying all the advantages of a SEP (tax-deferred savings, more significant contribution limits, quick and straightforward setup, and minimal maintenance fees).
One can invest their savings in practically any asset, from condos and apartment buildings to tax liens and private placements—achieving complete freedom immediately. Also, they are simple accounts to manage. They don’t have to disclose anything, and maintaining them costs nothing.
When money is put into a non-self-directed IRA, it is typically managed by the brokerage house that makes the investments. While using a Self-Directed SEP IRA, the account owner controls all investment choices through a custodian or broker. As a result, the owner has far more freedom in choosing investment options.