A SEP IRA is a retirement plan for sole proprietors and self-employed individuals. It has higher contribution limits and tax advantages, making it easier for the self-employed to save for retirement outside of the low limits of traditional and Roth IRAs.
Small business owners can open a SEP IRA for themselves and their employees; however, only the business can contribute the funds.
7 Best SEP IRA Providers
Best SEP IRAs for Beginners
Small business owners starting their first retirement account need SEP IRA providers that will hold their hand and make the process simple.
These SEP IRA providers for beginners all fit the bill:
1. TD Ameritrade
TD Ameritrade is a household name for investing, but did you know they have SEP IRAs that are great for beginners?
TD Ameritrade makes it easy to start with easy setup and maintenance. Setting up an account takes only a few minutes; there’s minimal paperwork and no maintenance fees or account minimums. TD Ameritrade also makes it easy to fund your account whether you set up automatic contributions or contribute manually. You can even fund your account online or from your mobile device.
You can choose from a wide selection of investments, including stocks, ETFs, mutual funds, and more. TD Ameritrade also provides access to free and robust education. If you have questions or concerns, their specialists are there to help you when you need them to provide the answers you need or point you in the right direction.
As a bonus, you can also visit one of TD Ameritrade’s hundreds of brick-and-mortar locations to get in-person support for your retirement planning.
SoFi started as a platform for students looking for affordable student loan options but has quickly branched into an investment platform offering various IRAs online. SoFi is for the digital millennial who doesn’t mind doing all of their investing and banking online and is looking for other value-added services, such as career coaching.
SoFi walks you through the process, even if you don’t know where to start. They will discuss your goals and help you diversify your portfolio accordingly, all with no commissions or minimum balances required. SoFi also offers an automated IRA option if you want a completely hands-off approach to investing for retirement.
In addition to being commission-free, there aren’t any monthly or annual maintenance fees, and you get access to SoFi’s financial planners to help you understand your current financial situation to reach your retirement goals.
SEP IRAs For the Hands-on Investor
If you’re the type of investor that likes to be hands-on, have a say in what you’re investing in, and handle the investments yourself, consider these top SEP IRA providers.
E*Trade has long been a household name for low-cost investing, and now they offer SEP IRAs too. What active investors love about E*Trade is the lack of commissions on the most common securities, including stocks, ETFs, and mutual funds. They also have low commissions on bonds and options.
E*Trade has a user-friendly platform, and you can invest using your mobile phone. In addition, you can let E*Trade manage your account for you or handle the diversification and trading yourself with their large selection of investments.
4. Merrill Edge
Merrill Edge makes it easy for small businesses to start a SEP IRA. If you open the plan online, there are no setup or annual maintenance fees. Like most providers, you also get $0 commission stock and ETF trades.
Merrill Edge makes it easy to open your SEP IRA and offers the option to manage your own investments or have them managed by Merrill Edge professionals. Once you set up the main account, your employees can set up their accounts, making it easier for you.
Then, when you are ready to add funds, Merrill Edge makes it easy with the Merrill Edge Contribs for Small Business Retirement Accounts platform, which is also free.
Tried and True SEP IRA Providers
If you’re the type of investor that likes to follow the crowd and stick with platforms you know others have had success with, consider these tried and true SEP IRA providers.
5. Vanguard SEP IRA
Vanguard is another household name when it comes to investing. They have over $8.1 trillion in assets under management and are one of the most user-friendly sites.
Vanguard offers options for sole proprietors and companies with employees; however, you’ll have a larger selection of investment options if you open the account only for yourself, including Vanguard mutual funds and ETFs, ETFs from other companies, stocks, bonds, and CDs.
Vanguard doesn’t charge anything to set up the account; however, they may charge small fees for each account you hold if you don’t meet the $50,000 in Vanguard assets requirement. They are also very transparent about fees and keep the expense ratios low for investors.
Fidelity is known for its mutual fund offerings, but they also offer a wide selection of investments for active traders. Fidelity has one of the largest selections of low-expense mutual funds, and there aren’t any account minimums or maintenance fees.
What investors love about Fidelity, besides their large selection of assets, is the 24/7 customer service and that there is access to over 180 physical branches to visit if you prefer in-person support. While they aren’t in every state and city, there are plenty of options for those who prefer not to operate their retirement accounts online.
7. Charles Schwab
Charles Schwab has been helping investors with their portfolios since 1971 and is one of the largest names in the investing circle. Schwab offers a long list of investment options that don’t charge any fees, making them so popular.
Like other platforms, you can easily set up your account online and manage it yourself or let Schwab do the legwork for you. If you use the robo-advisor option, you will need a minimum balance of $5,000.
Schwab also offers excellent customer service, including personal support in setting up your account.
Finding the Right SEP IRA Provider
Finding the right SEP IRA provider is important. You’re trusting them with your retirement funds, so you want a provider that’s affordable, has plenty of options, and is user-friendly. It sounds like finding a needle in a haystack, but it is possible.
If you do not pay attention to the fees, they can quickly diminish your profits. Some of the most common fees SEP IRA providers charge include the following:
- Expense ratios to buy and sell securities
- Deposit fees
- Withdrawal fees
- Monthly or annual maintenance fees
Even if the fees are a few dollars, it quickly adds up! So before choosing a provider, make sure they are transparent with these fees and that you understand what you’ll pay when choosing your SEP IRA provider.
Ease of Use
Setting up an IRA shouldn’t be stressful. You want a provider that offers a step-by-step process for making it easy to get up and running. All you should need to provide is your personal information, including your Social Security number and the funds to set up your account, then on your way to saving for retirement.
Diverse Investment Options
You are in charge of what you invest in with your IRA, but you can only choose what the provider offers. Look for a provider that offers a whole gamut of investments, including ETFs, stocks, bonds, alternative assets, and mutual funds.
Quality Customer Service
You should also be able to contact your provider with any questions and get answers immediately. Look for providers that offer email, chat, and phone options. Sometimes your questions will be simple enough to answer online by chat or email, and other times you may need the support of someone over the phone, so specifically, look for providers with phone support.
Pros and Cons of a SEP IRA
Like all retirement accounts, there are pros and cons of the SEP IRA, including the following;
- Minimal costs to start up
- Large selection of investment options
- Higher contribution limits
- Investments grow tax-deferred
- Only employers can contribute
- No catch-up contribution provision
- No Roth option
SEP IRA vs Traditional IRA vs Roth IRA
SEP IRAs are more similar to an employer-sponsored 401K than a personal IRA is. It’s a basic retirement plan for business owners and employees without the complex rules and paperwork required for a 401K.
The contribution limits for SEP IRAs are much higher than traditional or Roth IRAs, but like traditional IRAs, SEP IRA funds are pre-tax, with withdrawals triggering a tax liability when you take them.
Benefits of a SEP IRA Compared to a Roth IRA
As you explore your options to invest in retirement, you may find yourself comparing the SEP IRA to the Roth IRA. Of course, both have benefits, but here’s how they compare.
Simple to Open
Both SEP IRAs and Roth IRAs are easy to open. Most brokerage firms allow you to open an account online with minimal paperwork, which takes only a few minutes. If you have questions, most firms offer a customer service option online or over the phone to help you.
The largest benefit of SEP IRAs versus Roth IRAs is the higher contribution limits. In 2023, taxpayers may only contribute $6,500, which isn’t enough to meet your retirement goals. Even with the extra $1,000 catch-up contributions for people over 50, it’s still not enough.
In a SEP IRA, you may contribute the lesser of 25% of your compensation or $66,000, which is quite a difference in what you can contribute to your retirement.
Reduce Taxable Income
SEP IRAs are like traditional IRAs when it comes to tax treatment. The contributions you make aren’t taxed, so you’ll get the tax deduction the year you contribute. Roth IRA contributions, on the other hand, are after tax. This means you don’t get the tax benefit upfront, but instead, don’t pay taxes when you withdraw funds in retirement.
Any funds withdrawn from SEP IRAs are taxed at your current tax rate in retirement.
SEP IRAs don’t incur a tax liability until you withdraw the funds. This means the contributions and earnings can compound through the years they are in your retirement account. You only pay taxes on the funds when you withdraw them in retirement. If you withdraw funds early, you may have to pay a 10% penalty plus taxes.
Making the decision to open a SEP IRA versus a traditional or Roth IRA is a big decision. Here are some of the most common questions we get.
Who Is Eligible for a SEP IRA?
Business owners can open a SEP IRA to fund a retirement plan for themselves and their employees. Only employers may fund the SEP IRA, and for employees to be eligible, they must meet the following requirements:
- Be at least 21 years old
- Worked for the company for three of the last five years
- Receive at least $600 in pay this year
Is a SEP IRA Tax-Free?
SEP IRAs are tax-deferred, not tax-free. The contributions you make are pre-tax, but you’ll pay the applicable taxes when you withdraw the funds in retirement.
Can I Contribute to My SEP IRA?
Only the business may contribute to your SEP IRA. You cannot defer any of your salaries to your SEP IRA.
SEP IRAs can be a great way to save for retirement. While you can’t contribute your salary and defer taxes on your income, the business can fund your retirement account with much higher limits than traditional retirement accounts. If you work for yourself, the SEP IRA is a great replacement for the employer-sponsored 401K.