What is a SEP IRA?

What is a SEP IRA?

by | Oct 12, 2020


Hi there and thank you for stopping by today. Today I’m going to speak to you about SEP IRAs and solo 401(k) retirement plans. It’s going to be a two video session. First I’m going to talk to you about SEP IRAs.

My name is Tina Anders. I am the Fee Only Certified Financial Planner for my firm located here in Petaluma, California, Anders wealth management. I serve primarily Sonoma and Marin counties here in California.

Again, thanks for stopping by. So, I’m going to talk about starting with SEP IRAs, Simplified Employee Pensions. Simplified Employee Pensions or SEP plans are easy to establish, and they’re good for business owners with relatively high contribution levels, depending on your income level.

All contributions made to SEP IRAs are employer contributions. Unlike a 401(k) plan, there are no employee contributions. Contributions can be made for up to 25% of your compensation up to a limit of $57,000 for 2020.

For some sole proprietors, that actual contribution rate might be limited 20% of their compensation due to the way in which self employment income flows through the calculation.

A SEP IRA can be established up until the point you file your taxes including an extension. Also, a SEP account holder, generally speaking, can invest in anything that an IRA traditional or Roth can be invested in at your custodian.

A SEP IRA can be opened by a sole proprietor, corporation, including S or C, partnerships and other types of small business entities. Contributions to a SEP on behalf of the owner or the employee are immediately vested. And a couple more things, there’s no Roth option for a SEP IRA like there is for a solo 401(k) which we’ll get to in our next video.

And also loans are not available up against your SEP IRA as they are in solo 401(k)’s which we’ll talk about in the next video. And I’m also going to talk to you about which plan seems to be better for most people, a SEP IRA or a solo 401(k) plan?

Again, thank you for stopping by today. Tina Anders Anders wealth management in your corner always.