Self-Directed SEP IRA The Basics
A Simplified Employee Pension plan, or SEP, allows employers to contribute to their employees’ retirement. These individual retirement accounts (IRA) are tailored for employees’ retirement funds while employers reap a SEP IRA plan’s tax deductions compared to other retirement plans. SEP IRA plans are also available for self-employed individuals, freelancers, and small business owners.
Employers must contribute directly to an IRA set up for each employee, specifically a Self-Directed SEP IRA. Here are some of the key points of a SEP IRA:
A SEP IRA plan has low costs, with the choice of if and how much employers will contribute.
SEP IRAs do not have the operating and start-up costs that most conventional employer plans do.
Contributions are tax-deductible in a Self-Directed SEP IRA plan.
You can make tax-deductible contributions of up to 25% of each employee’s compensation. Bonus: If you are self-employed, you are considered an employee!
Gain the freedom of choice with a Self-Directed SEP IRA plan.
If you are self-employed, you are considered an employee and can create a SEP Self-Directed IRA plan.
You do not have to contribute the same amount each year!
You can self-direct a SEP IRA plan. Invest in assets such as real estate, private lending, limited liability companies, precious metals, and much more!
Why Consider a Self-Directed SEP IRA?
Freedom of Choice for Annual Contributions
Self-Directed SEP IRA retirement plans allow employers to make their contributions on a discretionary basis.
Low Start-Up and Operating Costs
Employers can take advantage of the inexpensive costs of providing employees with a Self-Directed SEP IRA plan.
Create Competitive Benefits Packages for Employees
Not all employers provide retirement plans, so this addition can attract those considering their future retirement.
Flexible Contributions for You and Your Qualified Employees
Compared to other retirement plans, a SEP Self-Directed IRA gives employers the choice of whether or not to contribute in a year and how much.
Applicable to Employees and Self-Employed People
Self-Directed SEP IRA plans are available to employers who want to provide retirement plans to employees, self-employed individuals, contractors, and freelancers.
The Best Self-Directed SEP IRA Accounts for Your Employees
An employee is eligible for a SEP IRA plan if they meet the following criteria:
Have reached the age of 21.
Have worked for you at least three of the last five years.
Have received at least $650 in compensation from you in 2022 or $750 in 2023.
You can exclude an employee from your SEP IRA plan if:
They are covered by a union agreement regarding retirement benefits that you and their union agreed on in good faith.
They are non-resident alien employees who have not received U.S. source wages, salaries, or other personal services compensation from you.
Self-Directed SEP IRA Guidelines
All contributions you make to your Self-Directed SEP IRA and your employees’ SEP retirement plans are tax-deductible.
Annual contributions you make to an employee’s SEP Self-Directed IRA cannot exceed the lesser of:
• 25% of compensation, or
• $61,000 for 2022 and $66,000 for 2023 (subject to annual cost-of-living adjustments for later years).
These limits apply in the aggregate to the contributions an employer makes for its employees to all defined contribution plans, which include SEP IRAs.
• Only up to $305,000 of an employee’s compensation may be considered for 2022 and $330,000 for 2023.
• Contributions must be made in cash-property cannot be contributed.
Employees have complete control over their contributions.
You can decide what percentage you contribute each year, keeping in mind that the rate you contribute must be the same for all employees.
You may make contributions up until you file your tax return each year, including extensions.