A simplified employee pension (SEP) IRA is a retirement savings account specifically designed for self-employed individuals. SEP IRAs allow entrepreneurs and independent contractors to contribute more to their retirement savings and open accounts for employees.
Small business owners often choose SEP IRAs for themselves and their employees because they can save for retirement tax-free and with significantly higher minimums than the supplementary traditional or Roth IRA.
Quick Look: The Best SEP IRA Providers
Three benefits: SEP IRA over a traditional or Roth IRA
1. Higher Contribution Limits
The draw to the SEP IRA over the traditional or Roth IRA is an increased contribution limit. When you open a standard IRA, you’re limited to $5,500 in contributions annually if you’re under the age of 50 and $6,500 if you’re over 50. SEP IRA contribution limits max out at $56,000 annually or 25% of taxable income each year.
You must be at least 21 years old to open a SEP IRA and if you have full-time employees, you’ll be required to make proportional contributions to their retirement accounts as well.
2. Tax Advantages
Though some employers worry about opening a SEP IRA because they know that they’ll be required to make contributions to their employees’ retirement accounts, it’s tax-deductible for employers.
Like a traditional IRA, contributions are not taxed when deposited into an account but are taxed when they are withdrawn. Special circumstances also allow businesses to defer or skip contributions when sales are down.
3. Ease of Opening
Like a traditional or Roth IRA, a SEP IRA can be opened quickly from home with the assistance of a major broker or banking institution.
What to Look for in a SEP IRA Provider
SEP IRAs should not be more complicated to open than a traditional retirement account. The best SEP IRA providers offer streamlined, digitized processes, allowing small business owners and contractors the opportunity to open an account without leaving home.
Low Fees and Expense Ratios
With mandatory employee contributions for each full-time worker, be especially careful to monitor deposit and withdrawal fees, fund expense ratios and account maintenance expenses to ensure that you aren’t losing any more money than necessary.
The best SEP IRA providers clearly lay out an easy-to-understand schedule of fees and expenses and offer lowered costs to those who hold larger value accounts.
A Diverse Range of Investment Options
Mutual funds, ETFs, bonds, oh my! The best SEP IRA providers provide a range of investment choices. How much you should save and where you should hold your money varies widely depending on age, income level and the number of dependents you support.
Customer Service Options
The best SEP IRA providers offer extended customer service hours, web and live chat support and a responsive customer assistance team to make retirement planning easier for busy contractors and entrepreneurs.
The best SEP IRA providers of 2019
0.30% annual fee
- Set-it-and-forget it investors
- Saving on taxes
- Complex financial planning for retirement
With more than $4.5 trillion in assets currently under management, Vanguard is one of the world’s most prominent providers of mutual funds and retirement accounts.
Though Vanguard is not authorized to directly provide retirement investing advice, if you’re ready to open an account and make your first deposit, you’ll quickly master Vanguard’s simple-to-use website. The company offers hundreds of professionally-managed mutual funds and low-cost ETFs in every industry imaginable. If you buy directly through Vanguard’s platform, you won’t pay commission on most fund investments.
You’ll be hard-pressed to find another SEP IRA provider more straightforward about expenses than Vanguard. The broker’s average fund expense ratio is just 0.12%, significantly lower than other brokerage firms. Vanguard’s “Admiral Class” funds proffer even lower expense ratios for those who invest a minimum of $10,000 in an individual fund.
Its wide range of investment opportunities, low fees and hundreds of commission-free mutual funds lands Vanguard as one of our top choices.
0.25% annual fee for accounts 0.4% Premium Plan with additional features annual fee for accounts more than $100,000
- Intermediate investors
- Retired investors
- College students
If you’re the type of business owner who is interested in hands-off investing, robo-advising services from Betterment can offer a quick path to saving for retirement.
Robo-advisors are a special subset of financial advising services that use algorithms and general investing principles to choose the right assets for you. They’re significantly less expensive than human financial advisors, between 0.25% and 1% annually to manage assets.
he company currently holds $13.5 billion in assets under management. Betterment specializes in totally hands-off investing, and all you have to do is answer a number of questions when you open your account.
Betterment’s team chooses investments suitable to your unique financial profile. With automatic dividend reinvestments and built-in portfolio rebalancing tools, Betterment is a great choice if you’re not interested in actively managing your own accounts.
$6.95 for fewer than 30 trades/quarter.
- Mobile traders
- Traders looking for research and data
- Investors looking for retirement planning guidance
Active day traders already know that E-Trade got its start pioneering the low-cost trading revolution, but many are unaware that the company also provides long-term investing options.
E-Trade offers full trading capabilities on both desktop and mobile platforms. Investment options for SEP IRA owners include stocks, bonds, mutual funds, ETFs and even options contracts.
With an intuitive platform and simple on-the-go trading options, E-Trade is a great choice for active traders who need an all-in-one home for their short and long-term investments.
- Retirement investors
- Active traders
- Premium research
- Low fees
- No-transaction-fee mutual funds
Fidelity Investments is a mutual fund-based brokerage firm that has recently taken steps to ramp up its short trading tools to appeal to day traders.
The broker has not forgotten its roots, and Fidelity has even become one of the first companies to offer two separate index funds completely free of expense ratios, the Fidelity ZERO Total Market Index Fund and the Fidelity ZERO International Index Fund. Retirement investors will love the ZERO funds as well as Fidelity’s 3,700 low-expense mutual funds.
The characteristic that really makes Fidelity stand out amongst other SEP IRA providers is its commitment to customer service. Fidelity offers 24/7 human customer service—no robots or endless prompts here. The brokerage firm also operates over 180 physical investment centers around the United States, which allows you to connect with a personal finance expert.
Though there isn’t a Fidelity center in every city, it’s comforting for technophobes to have someone available to guide you.
5. TD Ameritrade
- Beginner investors
- Advanced traders
- Investors who want portfolio-building advice.
TD Ameritrade is largely considered to be the premier brokerage firm for active investors. If you trade stocks and bonds, you’ve likely already heard about TD Ameritrade’s extensive research tools and mobile-compatible platforms.
TD Ameritrade also offers SEP IRAs for retirement planning, and you can invest in over 13,000 mutual funds and 300 commission-free ETFs. Like E-Trade, TD Ameritrade’s platform was designed for frequent traders, so it may take some getting used to if this is your first time handling your own retirement savings.
Thankfully, TD Ameritrade also offers exceptionally comprehensive customer service, including 24/7 phone service, text and web chat support and hundreds of in-person consultation sites where you can find retirement planning advice from a personal finance expert.
Though SEP IRAs can be a great choice for independent contractors and those who own very small businesses, expenses associated with mandatory employee contributions can quickly become overwhelming for business owners. Additionally, not everyone qualifies to open a SEP IRA; you must be over the age of 21, you must have worked for your current employer for at least three years, and you must receive at least $600 in compensation from the source of revenue that qualifies you for a SEP IRA each year. For those who do not qualify, a traditional or Roth IRA can provide a viable alternative to employer-free retirement savings.
If you’re interested in learning more about the different types of IRAs available and what’s best for you, check out Benzinga’s IRA crash course.