What is a SEP IRA Plan?

A SEP is a Simplified Employee Pension plan which provide business owners with a straightforward way to contribute to their employee’s retirement as well as their own.  As the name implies, these plans are simpler to set up and administer than 401-k plans (and FAR simpler than traditional pension plans.)


How Do SEP IRAs work?

Any employer, including the self-employed, can set up a SEP plan. There are three steps:

  1. Adopt a formal IRS approved agreement such as a SEP prototype plan.
  2. Provide every employee with information about the plan.
  3. Set up a SEP-IRA account for each eligible employee.

It should be noted here that each employee owns and controls their SEP-IRA.

The Employer gets to take a deduction for the contributions to the plan and the money grows tax-deferred for the employee.

There is no employer obligation to contribute to the plan, a benefit to businesses with cyclical earnings.

All eligible employees must receive the same percentage contribution.  If the owner contributes 10% of earnings to his or her SEP-IRA, every eligible employee must receive 10%.  For this reason, SEP’s are often used by self-employed business owners.

As SEP-IRA’s are like traditional RIA accounts, the investment selection is self-directed by the owner.


Are there any drawbacks to a SEP Plan?

From the business owners view, this plan is completely funded by the employer.  Unlike a 401-k plan, this is not an employee contribution/employer match type plan.  Also, all employees are immediately vested.

For the employee, there a few drawbacks.  Loans may not be taken against SEP-IRA’s and there are no catch-up provisions for employees nearing retirement.


How we can help with SEP IRAs?

We can help you with everything you need to determine if you benefit from a SEP plan and go over the steps needed to set one up.  

Using our partners with Schwab, TD Ameritrade, and Fidelity we can choose the best and easiest SEP Prototype plan and establish the needed documents and accounts with our custodians.  We can work with you on implementation, tools to setting the best contribution rates and assist with the investment selection.

Already have a SEP plan? We can help you decide the best way to invest your money to achieve your financial goals.