Self-Directed SEP IRA The Basics
A Simplified Employee Pension (SEP) plan provides employers with a way to make contributions to their employees’ retirement. Contributions must be made directly to an IRA that is set up for each employee, specifically a Self-Directed SEP IRA.
A SEP IRA plan has Low Costs.
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!
Freedom of Choice with a Self-Directed SEP IRA plan
You do not have to contribute the same amount each year.
You can self-direct a SEP IRA plan. Use your Self-Directed SEP IRA to invest in a variety of assets such as real estate, private lending, limited liability companies, precious metals, and much more!
Why Consider a Self-Directed SEP IRA?
You want the freedom to choose whether or not you make contributions each year.
You want a plan with low start-up and operating costs.
You’re looking to add a valuable plan to your benefits package to attract quality employees.
You want to contribute to your employees’ retirement and yet you want the flexibility to decide how much you contribute.
You are a sole proprietor, independent contractor, self-employed, partner, or corporation.
Self-Directed SEP IRA Eligibility
An employee is eligible for a SEP if:
Have reached age 21.
Have worked for you at least 3 of the last 5 years.
Have received at least $650 in compensation from you in 2022. This amount will increase to $750 for 2023.
An employer can exclude an employee from the plan if:
They are covered by a union agreement and their retirement benefits were bargained for in good faith by their union and you.
They are non-resident alien employees who have received no U.S. source wages, salaries, or other personal services compensation from you.
Self-Directed SEP IRA Guidelines
All contributions you make to both your SEP and your employees’ SEP are tax-deductible.
Annual contributions an employer makes to an employee’s Self-Directed SEP 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 includes SEP IRAs.
• Only up to $305,000 of employee’s compensation may be considered for 2022 and $330,000 for 2023.
• Contributions must be made in cash-property can NOT be contributed.
Employees have complete control over his/her contributions.
You have the freedom of choice to decide what percentage you contribute each year keeping in mind that the percentage you contribute must be the same for all employees.
You may make contributions up until you file your tax return each year, including extensions.